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-- Posted: July 3, 2000

Dorothy Rosen -- The Dollar Diva Ask the Dollar Diva

Can I have a spousal IRA?

Dear Dollar Diva,
Can a separated or divorced non-working mom make a contribution to a spousal IRA? Can it be made to a traditional IRA or Roth IRA?

If you are legally separated under a final decree of separate maintenance or a final decree of divorce, you are considered unmarried for tax purposes. And the IRS says no hubby, no spousal contribution.

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But don't fret; you may have another option if you're collecting alimony. Guess what the Internal Revenue Service includes in "compensation?" Taxable alimony and separate maintenance payments. And the rules say that anyone who receives "compensation" and is not yet 70-1/2 years old can make an IRA contribution. The IRS got it right this time.

What does this mean for you? If you're receiving payments that will be reported on the "alimony" line of your tax return, you can contribute the lesser of $2,000 or 100% of the "compensation" to your own existing IRA (or open up one in your name).

Your IRA contribution can be made to a traditional IRA or a Roth IRA or a combination of both, as long as the total isn't more than $2,000. The traditional IRA is tax deductible; the Roth IRA is not.

Traditional IRA: How much can I deduct?

As a stay-at-home mom with no work-related retirement plan, you can deduct up to $2,000 in a traditional IRA, as long as you receive that much in taxable alimony, and contribute that much to your IRA.

There is no income limitation. You can deduct up to $2,000 even if you receive a million dollars in taxable interest and dividends.

Roth IRA: It's non-deductible

The traditional IRA has no income limitations; the Roth IRA does. For most stay-at-home, divorced moms, the income limitations won't matter. But if you're among the lucky few who are raking in a bundle in alimony and other income, your ability to contribute to a Roth will be reduced or phased out to zero. For the taxpayer who files as single or head of household, the phase out amount is between $95,000 and $110,000.

For more information on the traditional and Roth IRAs, read IRS Publication 590 Individual Retirement Arrangements (IRAs) and the Diva's "What's the difference between a 401(k) and an IRA?"

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