QUESTION: I am a U.S. citizen self-employed in Panama. In 2007 I set
up a Roth Solo 401(K) plan, as my business has no employees other than
myself. However, I also qualify for the foreign earned income
exclusion, and my total earned income this year will not exceed the
exclusion limit. Am I eligible to make a contribution to my Solo
401(K)? I have read that I cannot contribute to a Roth IRA, but
perhaps you could comment on that as well.

REPLY: The tax law doesn't permit double dipping. Deductions are not
available for income that is exempt or excludable. In addition, a
deduction for a 401(k) plan is only available to the extent of earned
income, and if that income is excluded from tax (because of the
foreign earned income exclusion), there would be no income on which to
base the deduction. The same basic rule applies to a Roth IRA.

Vern

IRS Regulations require that I include the following statement with
any written explanation of the tax law. The comments in this
memorandum are not intended to constitute an opinion regarding any
specific tax issues because additional tax issues may exist that could
affect the tax treatment of the tax issues addressed in this memo.
This memorandum does not consider or reach a conclusion with respect
to those additional issues and was not written and cannot be used for
the purpose of avoiding penalties under code section 6662(d). For
further details see
http://www.offshorepress.com/vkjcpa/disclosurerules.htm