As the tax advantages of alimony payments disappear in 2019, expect the individual retirement account to feature more prominently in divorce discussions.
That’s a prediction from Ed Slott, CPA and founder of Ed Slott and Co. He hosted a discussion on IRA planning at the American Institute of CPA’s Engage conference in Las Vegas.
Today, and under the old tax law, one spouse pays alimony and collects a benefit in the form of an above-the-line deduction on his income tax return.
“It’s almost always the case that the spouse paying the alimony was in a higher tax bracket than the one receiving it,” Slott said. “The payer gets a big deduction, and the other spouse picks it up as income in a lower tax bracket.”
The calculus of divorce has changed under the Tax Cuts and Jobs Act.
Alimony will not be available as a deduction for couples who finalize their divorce and separation after Dec. 31, 2018. Existing divorces and separations aren’t affected by this.
IRAs can provide divorcing couples an alimony planning opportunity under the new law, provided the conditions are just right, according to Slott.