Alimony Payments for Making IRA Contributions

Eligible Compensation

Compensation for Traditional and Roth IRA contribution eligibility generally is income a person earns from working. Compensation is defined in IRC Sec. 219(f)(1), Treasury regulations, and IRS Publication 590-A,
Contributions to Individual Retirement Arrangements (IRAs). The following types of income are considered eligible compensation for IRA contributions.
• Salary
• Wages
• Tips
• Professional fees
• Commissions
• Bonuses received as a result of working or performing services
• Taxable alimony received under a divorce decree or separate maintenance agreement as described below
• Nontaxable combat pay to combat zone personnel
• Differential wage payments (wages paid by employers for employees who are on military active duty)
• Certain net earnings from self-employment (after deducting one-half of self-employment taxes and
retirement plan contributions)

Alimony Pay

The Tax Cuts and Jobs Act of 2017, passed in late December 2017, eliminates alimony as eligible compensation for any divorce or separation instrument executed after December 31, 2018.

Alimony and separate maintenance 

For IRA purposes, compensation includes any taxable alimony and separate maintenance payments you receive under a decree of divorce or separate maintenance but only with respect to divorce or separation instruments executed on or before December 31, 2018, that have not been modified to exclude such amounts.

Repeal of alimony payments as inclusion in compensation  

Alimony received is not included in your compensation if a divorce or separation agreement is entered into after December 31, 2018, or if you entered into a divorce or separation agreement on or before December 31, 2018, and the agreement is changed after December 31, 2018, to expressly provide that alimony received isn’t included in your income. For more information, see Pub. 504.

Income for Roth IRA Contribution QUESTION:

Since  I am also receiving rental income as well as social security , would this affect my ability to open a Roth Ira  and if so what would be the income limit if there is one?

ANSWER: 

Social security income and rental income does not qualify as earned income for making Roth IRA contributions. Rental income is generally treated as capital gains income unless you are treating it us earned income which would be based on whether or not you are doing material services.

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About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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