That sounds interesting but I've never heard of a spousal IRA. How does that work exactly? Does it come with the same tax benefits as a regular IRA?

A spousal IRA works just like a regular IRA - same contribution limits, same tax benefits. The difference is that normally you need earned income to contribute to an IRA, but the spousal IRA is an exception that allows a working spouse to contribute to an IRA for a non-working spouse. For 2024, you could contribute up to $7,000 to a spousal IRA for your wife ($8,000 if she's 50 or older). This gives you an additional tax deduction if you choose a Traditional IRA, or tax-free growth if you choose a Roth IRA. You'll need to file jointly to use this benefit, and your earned income must be at least equal to the total contributions you make to both your IRA and her spousal IRA.

This is a really good point. Do you use any specific tax software that made it easy to compare the two options?

11 Wait so does disability payments count as earned income for Roth IRA purposes? I've been on short-term disability for a few months but still contributing to my Roth.

22 No, most disability payments don't count as earned income for Roth IRA purposes. Short-term disability payments from your employer or an insurance company are generally considered taxable income, but they're not considered earned income for IRA contribution eligibility. The only exception would be if you're receiving disability payments from Social Security and you've previously opted to have those benefits taxed as wages. But that's pretty uncommon and requires specific prior arrangements with the SSA.

1 Thank you! I haven't filed yet for 2024, so I'm trying to fix this before I submit anything. Do I still need to file Form 5329 if I withdraw the excess before filing?

What if I plan to keep my house in my home state and rent it out while I'm gone? Does that mean I'll always be considered a resident there for tax purposes?

Keeping a house doesn't automatically make you a resident, but it does create a connection to the state that tax authorities might use to argue you've maintained your residency. If you rent out your house, you'll need to report that rental income to your state, but that doesn't necessarily make you a full resident. To strengthen your case for non-residency, make sure you have documentation showing you've established a genuine home in Dubai, like a long-term lease or utility bills in your name. Also keep records of your physical presence (entry/exit stamps, flight records) to demonstrate you're genuinely living abroad. Some states have specific requirements about maximum days you can spend there annually without triggering residency.

You can generally keep your retirement accounts as they are when moving abroad. For contributions, it gets tricky - you need US taxable income to contribute to an IRA, so if all your income is excluded via the Foreign Earned Income Exclusion, you might not be eligible to contribute. For 401k contributions, it depends on your employer - if you're working for a US company abroad, you may still be able to contribute, but if you're working for a foreign employer, you typically can't.

I'm in Dubai now and found that keeping my retirement accounts in the US was the easiest approach. Just make sure your financial institution doesn't have issues with foreign addresses - some do!

Thanks so much for this! One question - my daughter lives with me 100% of the time, but her dad keeps claiming he's "entitled" to claim her some years because he pays child support. Is that true? The custody agreement doesn't mention taxes at all.

Child support payments do NOT give someone the right to claim a child as a dependent. The IRS has very specific tests for who can claim a child, and the main one is where the child lived for more than half the year (the residency test). If your daughter lives with you 100% of the time, you are the qualifying parent. Your ex might be thinking of the "dependent exemption release" (Form 8332) where the custodial parent can voluntarily release their claim to the non-custodial parent. But this is completely voluntary - you don't have to do this unless it's specified in your custody agreement. No custody agreement means you, as the parent with 100% physical custody, have the right to claim your child.

Did they end up penalizing your ex for filing incorrectly? I'm wondering if there are any consequences for the person who's been claiming my kid.

Yes, they did eventually! The IRS sent him a notice disallowing the child tax credit and earned income credit he'd claimed. He had to pay back all of that money plus interest and a 20% accuracy-related penalty. It took about 14 months from when I filed my paper return with documentation, but the IRS did resolve it in my favor. I also found out he'd been doing this for 3 years, so they went back and audited his previous returns too. Expensive lesson for him!

That's super helpful, thanks! My accountant mentioned something about "reasonable compensation" requirements for S Corps but wasn't clear on how that interacts with the K-1 income flowing in. Does the K-1 income from the LLC affect how much I need to pay myself as reasonable salary from the S Corp?

The K-1 income does indirectly affect reasonable compensation considerations. The IRS expects S Corp owner-employees to take a "reasonable salary" before taking distributions, which means your salary should be comparable to what would be paid for similar services in your industry. When your S Corp receives additional income (like K-1 income from an LLC), it increases the total profit available in the S Corp. If your responsibilities or time commitment increase due to this additional business activity, it might justify a higher reasonable salary. The key test is always what's reasonable for the actual services you're providing to the S Corp. Remember that paying yourself too little in salary and taking large distributions instead can be a red flag for the IRS, as it can look like an attempt to avoid payroll taxes.

I did this last year. The paperwork is a pain, honestly. You need to formally admit the S Corp as a member of the LLC, which means amending the LLC operating agreement. Then there's the whole issue of how to value the membership interest if the S Corp is purchasing it rather than being granted it. We had to get a business valuation done which cost about $3,500.