I am a US citizen currently working overseas for a small company that has no US affiliate (or any other ties). I am earning less than 100000 USD annually. I would like to contribute to my IRA but it requires I have EARNED INCOME. Does foreign income not qualify as EARNED INCOME?

I believe if I chose to contribute I will be penalized on that contribution. Is this a one time fee or will it be applied to the contribution for the life of the IRA?

Thanks in advance.

It will not be counted as earned income if you file Form 2555 for foreign income exclusion. If you file Form 1116, then it is earned income.

Read at Internal Revenue Service (http://www.irs.gov) Publication 17: your Individual Income tax; Chapter 17.

SOME of the $100K WILL be counted as earned income, because there is a $85K limit on the Foreign Income Exclusion.

Hence, the IRA can be deducted.