Roth Contributions and The Value of Your IRA: Today’s Slott Report Mailbag

Thursday, February 28, 2019

By Jeremy T. Rodriguez, JD
IRA Analyst
Follow Us on Twitter: @theslottreport

Question:

Hello,

I am a CPA and was not sure if in 2019 alimony was considered earned income for making a Roth IRA contribution. Would appreciate any clarification you can provide.

Thank you very much.

Have a great day!

Dale

Answer:

Dale,

This issue was one of the changes enacted under the Tax Cuts and Jobs Act. Under the old law, alimony was taxable to the recipient. That means it would be considered earned income and therefore able to be used in making a Roth IRA contribution. However, the new law, effective January 1, 2019, flipped these rules. Alimony is no longer taxable to the recipient, meaning it can no longer count as earned income for IRA contributions (Alimony will also no longer be deductible by the payor). The new rules apply to divorces granted (and alimony awarded) after December 31, 2018. Alimony agreements that were finalized before the cut-off date continue to follow the old rules, unless the agreement is later modified to specifically adopt the new tax treatment.

Question:

Dear IRA help,

In doing my 2018 taxes in Turbo Tax I’m asked the question, “Total value of your traditional IRA?”  I not sure how to answer this because I have my own traditional IRAs (accounts in two financial firms), plus I’m taking RMDs from an inherited IRA annually. Form 8606 asks for this total value, but I am not sure if I have to add in my inherited IRA value. Please help.

Thanks,

Tim

Answer:

Tim,

You do not have to include the value of your inherited IRA with your own traditional IRAs. They are treated separately for tax purposes. If the transaction relates to non-deductible contributions you made to your own account, you only have to the include value of all owned traditional, SEP, and SIMPLE IRAs. Under the tax code, you are treated as a beneficiary of an inherited IRA, not the owner.

 

 

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