Roth IRA Disability Income

[Guest Mary Rinaldi]

Can a Roth IRA be funded if the only "earned income" is non-taxable disability income? Can a spousal Roth IRA be funded if tax return filed married filing separately? What is the limit on a spousal Roth IRA for 2002?

[papogi]

The IRS says that compensation is what you earn from working, and that any amounts you exclude from income are not considered compensation. They do not specifically address disablility income, although they do say that amounts on line 1 on a W-2 are considered compensation, so that should serve as a safe harbor here. Spousal Roth IRA's can be funded if filing separately. To do so, however, the taxpayer's modified AGI must be under $10,000 if the taxpayer lived with the spouse at any time during the tax year, or under $110,000 if the taxpayer did not live with the spouse. The limit on the spousal Roth IRA contribution for 2002 is $3,000.