Alimony OK to Fund Roth IRA

What are the differences between a Roth IRA and a traditional IRA? This is the question that one Chicago Tribune reader asked after seeing a column on individual retirement accounts published two weeks earlier. Chicago tax partner David Handler contributed to answering this question.

Handler explained that to fund an IRA you need "earned income," which is typically wages from employment.  However, as explained later in the story, taxable alimony payments may also be used to fund an IRA. In addition, unlike traditional IRAs that cannot be funded after age 70 ½, a Roth IRA can be funded at any age. Handler also explained that a Roth IRA may be distributed to heirs, but they can't hold on to all of it forever. For example, when the holder of a Roth IRA dies, the funds must be distributed over the life expectancy of the beneficiary.

This article appeared in its entirety in the January 18, 2004 issue of the Chicago Tribune.