Wes Moss Says American Expats Must Check This Before Funding a Roth IRA
Alan from Georgia asked a question on the Clark Howard Podcast’s “Ask An Advisor” segment with Wes Moss that many American parents with kids working abroad probably haven’t considered: his U.S. citizen daughter “lives in Germany and has only German-earned income,” and he wanted to know whether he could use his own after-tax dollars to fund her Roth IRA. The answer Moss gave is technically correct, but it opens a door to a rule that trips up Americans overseas more than almost any other tax provision.
The Earned Income Requirement Is the Whole Ballgame
Moss’s verdict was direct: “It just comes back to, does she have earned income?” The IRS requires that a Roth IRA contributor have earned income at least equal to the contribution amount for that tax year. The source of the funding, whether the daughter’s own paycheck or a gift from her father, is irrelevant. What matters is whether the daughter has qualifying earned income on her U.S. tax return.
For Americans working in Germany, that determination hinges on which tax strategy she uses to avoid double taxation. The U.S. taxes its citizens on worldwide income regardless of where they live, so she still files a U.S. return. But she has two primary tools to avoid paying tax twice on the same German wages.
The first is the Foreign Earned Income Exclusion (FEIE), which for 2025 allows qualifying Americans abroad to exclude a substantial portion of foreign wages from U.S. taxable income. The second is the Foreign Tax Credit (FTC), which offsets U.S. tax liability dollar-for-dollar with taxes already paid to Germany.
The choice between them determines whether Alan can help fund the Roth at all.
FEIE Versus Foreign Tax Credit: Two Paths, Two Outcomes
Moss spelled out the fork clearly: “If she’s using the foreign earned income exclusion, the FEIE, and she’s using that and has no earned income in the United States, then the answer is likely no, you can’t do it.”
When a taxpayer uses the FEIE, the excluded income is removed from the IRS’s definition of compensation for Roth IRA purposes. If all of her income is excluded, her IRS-recognized earned income is zero, and zero earned income means zero Roth IRA contribution eligibility. Alan can gift her the money, but she cannot legally deposit it into a Roth.
The Foreign Tax Credit route produces a different result. “If you’re using the foreign tax credit, then it’s very possible that she ends up with income, which means that yes, you can help, either she can fund it or you can help her fund a Roth,” Moss said. Under the FTC, her German wages are not excluded from U.S. income, so they remain as earned income on her return. Germany’s income tax rates are generally high enough that the credit offsets most or all of her U.S. tax liability, and she retains her Roth eligibility in the process.
Consider a concrete example. Assume the daughter earns the equivalent of $70,000 in German wages. Under the FEIE, she excludes that income and owes no U.S. tax, but her IRS-recognized compensation is $0, making her ineligible to contribute to a Roth. Under the FTC, she reports the full $70,000 as income, applies German taxes paid as a credit, and likely owes little or nothing to the IRS, but her earned income on her return is $70,000. That makes her eligible to contribute up to the annual Roth IRA limit, and Alan can fund that contribution on her behalf.
Americans Working Abroad Full-Time Should Check Their Filing Method First
This scenario applies to any U.S. citizen working full-time abroad with no U.S.-source wages. The stakes are real: a decade of missed Roth contributions, compounding tax-free, represents a compounding gap in long-term retirement savings. With core PCE inflation running at an index level of 128.39 and the federal funds rate sitting at 3.75%, tax-free growth inside a Roth carries real value against inflation erosion over decades.
Moss was unambiguous about the next step: “Really comes down to the tax return, which again, you’d want to consult a CPA on this or tax attorney, and even more so someone that understands foreign income. That’s a whole nother layer.” He recommended Alan ask a CPA specifically whether the daughter is using the FEIE or the Foreign Tax Credit, because “that gives you the answer to earned income in the U.S. or not, hence Roth contribution available or not.”
The practical action is straightforward: pull the daughter’s most recent U.S. tax return and look for Form 2555 (FEIE) or Form 1116 (Foreign Tax Credit). If Form 2555 is there and her U.S. earned income is zero, Roth contributions are off the table until her filing strategy changes. If Form 1116 is the mechanism and her income appears on the return, Alan can fund the Roth up to the annual limit. One form number is the difference between yes and no.
