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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.
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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DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting,
from the Kellogg Graduate School at Northwestern University in Evanston,
Ill. Rosen has more than 15 years of experience in the financial arena, serving
in Illinois and Florida as a certified public accountant, financial consultant,
expert witness and educator. She is owner of Dorothy Rosen, CPA, a public
accounting firm that serves individuals and small businesses.
