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Spousal IRA Contributions and Divorce

A spousal IRA or Roth IRA contribution can be made when one spouse has earned income and the other little or no income.

Since there are no joint IRAs, the ono-income earning spouse still has to establish a separate IRA account. Contributions can be made one year and not another.

What happens if the income earning spouse makes a contribution early in the year to the spousal IRA account and files for divorce later that year? The spousal contribution becomes invalid and in excess that year, unless the non-income earning spouse gets a job and has his or her own compensation to justify the contribution.

Two rules for spousal contributions are that the spouses must file a joint return that year and must be married on December 31 of the year the contributions is made. If the spouses are divorced by year-end they cannot file a joint return.

The contribution for the non-earning spouse must be removed – as an excess contribution. The custodian must be notified and the excess contribution and earnings on the contribution be removed in a timely manner. This contribution will not be taxable but earnings included in income of the income earning spouse. A 10% penalty will also be assessed if the IRA owner is under age 59 ½.