Rental income as Taxable income (?) for 403 retirement accounts in US

We would like to continue funding our retirement accounts in the US, even though we are here in the UK, and getting a salary within the UK PAYE and superannuation scheme.

Question: Will our rental income from our house be eligible as taxable income that we can use to add to our US retirement accounts?

Do most of you expats let the US retirement accounts lie fallow once you land in the UK? Eventually, we want to return to the US to retire. We are in early forties now.

Advice?

We'll be moving to the UK in a couple of years and will leave our retirement accounts in the USA.  As long as you check that the financial institutions holding your retirement accounts allow you to have a foreign address then you should have no problems.

Question: Will our rental income from our house be eligible as taxable income that we can use to add to our US retirement accounts?

In order to contribute to a US retirement account you must have "taxable compensation" which generally means wages or self-employment income. Rental income, interest, dividends, and other types of passive income do not count.

However, in your case you say you are getting a UK salary, which can be considered taxable compensation, but be aware that any amount you exclude using the foreign earned income exclusion is not taxable compensation. There is no such issue if you take a foreign tax credit on your salary instead of an exclusion, so you may wish to consider using the credit instead.

Also, you didn't ask, but some unsolicited advice: there are UK tax savings available if before becoming UK resident you contribute to both Traditional and Roth IRAs, then once in the UK you contribute to the traditional IRA and then immediately do a Roth conversion. This opportunity is discussed in a few threads on this board - here's one: http://talk.uk-yankee.com/index.php?topic=80620.0

Thanks Politicfool! For some reason, I believe that we are on track to use the FEIE option; I am not sure that I remember off hand exactly why.

Do you happen to know if the same tax restrictions (i.e., must be 'taxable compensation') also hold for a 529 account in the states? We probably should have set this up before we left the states, but didn't think of it. We have some birthday monies that we have received over the years (son is 3), and we would like to start a 529 account. 

Those restrictions don't apply to 529 accounts, but you may want to tread carefully because 529s are not protected by the US-UK tax treaty in the same way that retirement accounts are.

This means that:

• if you're taxed on the arising basis, dividends and gains within the 529 account are UK taxable. Unless your 529 invests in funds that are on the HMRC reporting funds list, or that qualify as transparent non-reporting funds, these will be taxed at ordinary income tax rates, and not at the lower rates normally available for dividends and capital gains.
• if you're taxed on the remittance basis, those amounts are not immediately UK taxable, however they will become taxable if you withdraw them from the 529 and bring them to the UK (e.g. if your son ever attends a UK university).

If you are thinking of a 529 plan you may want to read first the UK rules on a "settlor interested trust"; because you could be significantly complicating the UK tax position.

We would like to continue funding our retirement accounts in the US, even though we are here in the UK, and getting a salary within the UK PAYE and superannuation scheme.

What retirement accounts are you hoping to fund? you won't be able to fund previous employer sponsored funds like 401k, 403b, 4587 etc. However, you can fund Traditional and ROTH IRAs if you show taxable income on your 1040.