IRA and Alimony

You may not have to work after a divorce to contribute to an IRA.

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Among the surprises in Internal Revenue Service rules regarding IRAs is that alimony and maintenance payments may be contributed to an account. Other than that, IRA funds must be derived from what is normally considered earned income, that is, wages, salaries, tips, commissions and self-employment income. Perhaps the arduous effort involved in marriage and the bitterness that can ensue from a divorce action led the IRS to classify alimony as earned income.

Step 1

Look for your alimony payment by mail or via direct deposit.

Step 2

Contribute some or all of the payment to your traditional or Roth IRA. As of tax year 2012, you can put up to $5,000 per year, or $6,000 if you are 50 or older. The limits for tax year 2013 are $5,500 and $6,500, respectively.

Step 3

Take withdrawals only if you must. IRA money is meant to fund your later years. Although you can take out Roth contribution money tax- and penalty-free at any time, you'll lose out on the chance to have your money grow. For good reasons to take a withdrawal, even before age 59 1/2, see the tips below.