Spousal IRA difficulty of care payments

[Notice2014-7]

My spouse makes 45k from difficulty of care payment excluded from tax irs 14-7 payment, she has no w2 or offered any retirement plan.I make 35k earned income . Can I contribute to spousal IRA for her? 

[KrisD15 · Accepted solution]

Yes, however she may also claim that non-taxable income and contribute to her own IRA. 

According to the IRS

“For tax years beginning after 2019, there is no age limit to contribute to a traditional IRA. Compensation for purposes of contributing to an IRA doesn't include earnings and profits from property, such as rental income, interest and dividend income, or any amount received as pension or annuity income, or as deferred compensation. In certain cases, other amounts may be treated as compensation for purposes of contributing to an IRA, including certain alimony and separate maintenance payments received, certain amounts received to aid in the pursuit of graduate and postdoctoral studies, and certain difficulty of care payments received.”

To do this in TurboTax, enter the full non-taxable income under:

• Wages & Income
• Less Common Income
• Miscellaneous Income, 1099-A, 1099-C
• Start
• Select "Other income not already reported on a Form W-2 or Form 1099
• Start
• Complete the interview
• You MUST enter ALL or NONE of the income

This income can be used for IRA contributions and for the calculation of the Earned Income Credit and Child Tax Credit.

You will need to experiment to see if adding this income is a benefit to you or not.

Again, you claim all or none.

The income will NOT be taxable 

[Notice2014-7]

Hi Kris, 

Thanks for the response. If she does her own with non taxable Medicaid waiver payments. Can she open Roth IRA? Thankyou

[dmertz]

The spousal contribution goes to your wife's traditional or Roth IRA no matter which spouse's income supports the contribution.  If your MAGI permits, both of your are eligible to contribute to Roth IRAs.