Alimony is compensation for purposes of IRA contributions.

• Author: Wasserstrum, David J.
• Position: Brief Article

The limitation for contributions to an individual retirement account (IRA) is generally equal to the lesser of $2,000 or 100% of compensation includible in gross income. Consequently, in order to be eligible to make a contribution to an IRA, an individual must have compensation.

Sec. 219(f)(1) defines the term "compensation" for purposes of contributions to IRAs. Included in the definition is any amount includible in an individual's gross income under Sec. 71, which includes taxable alimony or separate maintenance payments received under a decree of divorce or separate maintenance. Thus, a divorced or separated individual may set up an IRA and make contributions up to the lesser of $2,000 or 100% of...