Working abroad but have a traditional IRA, why do i owe penalty?

Forum|Forum|1 year ago
May 27, 2024
2 replies
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I live and work abroad in Europe but have a traditional IRA account in the states that i contribute to under the limit and turbotax is saying I exceeded the amount of my income although I contribute way below what I make abroad. so it's now saying I owe penalty. Is it possible to offset this? or do I always have to pay the penalty as long as I'm contributing to my retirement investment account?

TurboTax Premier Online

Best answer by VolvoGirl

No. It is taxable income but you need Earned income like W2 wages or a Net Profit from self employment on Schedule C to contribute to a IRA. You need to remove the contribution and any increase from the IRA or you pay the penalty each year it stays in the account.

DoninGA

Employee

You must have US taxable income to contribute to an IRA. If your taxable US income is less than the amount you contributed to the IRA, there will be a penalty for an excess contribution.

For 2023, the total contributions you make each year to all of your traditional IRAs and Roth IRAs can't be more than:

$6,500 ($7,500 if you're age 50 or older), or
If less, your taxable compensation for the year

hkim872Author

does my 1099 DIV/INT count as taxable income? it's so low like under $500 and that's all i have. how do i avoid this in the future?

VolvoGirlAnswer

Employee

dmertz

Employee

Under the automatic 2-month filing extension for living abroad, you have until June 17, 2024 to obtain a return of your excess 2023 IRA contribution to avoid the 6% excess-contribution penalty. If you fail to obtain this corrective distribution by the due date of your 2023 tax return, you'll have the penalty again each year until the excess is resolved by then obtaining a regular distribution of the excess amount.