No W2 or 1099 Provided - How Can My Wife Contribute to an IRA While Working for Foreign Government?

Thanks for the helpful information! I wasn't sure if a Traditional IRA was possible without having a W2. So she can contribute to both a Traditional IRA and her existing Roth IRA in the same year? Are there income limits for the Traditional IRA that might affect us? We file jointly and our combined income is around $135,000. Also, where exactly should we be reporting her income on our tax return if she doesn't receive a W2 or 1099?

Yes, she can absolutely contribute to both a Traditional IRA and Roth IRA in the same year, as long as the combined contributions don't exceed the annual limit ($7,000 for 2025 if under 50). For Traditional IRA deductibility, with your combined income of $135,000, you'll need to check the phase-out ranges if you're covered by a retirement plan at your job. If you're not covered by a workplace plan, then her Traditional IRA contribution would be fully deductible. For reporting her income, you'd include it on Line 1 of Form 1040 as wages, and attach a statement explaining that she works for a foreign embassy that doesn't issue a W2. I'd recommend documenting her pay stubs carefully and possibly consulting with a tax professional who specializes in foreign income situations.

Does it actually work with embassy income specifically? My husband works for the Indian embassy and we've been totally confused about how to handle his retirement planning. Our accountant charges us extra every year because of the "complexity" but still seems unsure about what accounts we can use.

I'm skeptical about these online services. How does the system even know about international tax treaties? Did they actually give specific advice about which retirement accounts to use, or just general information you could find on the IRS website?

Yes, it absolutely works with embassy income! It has specific features for diplomatic income recognition and automatically applies the relevant tax treaty provisions. You just upload the pay stubs and it identifies the classification correctly. For retirement accounts, it gave us specific recommendations based on the exact situation - not just generic advice. It showed exactly which retirement accounts were eligible, contribution limits considering the special income type, and even highlighted potential deduction limitations based on our total household income. Much more detailed than what we found on the IRS website or through our previous accountant.

Wait, how does this even work? I thought it was impossible to get through to the IRS these days. Is this just a paid service where someone waits on hold for you?

I don't believe for a second this actually gets you through to the IRS faster. Their phone system is completely broken and no service can magically fix that. Plus, IRS agents often give inconsistent advice anyway - I've called three times with the same question and gotten three different answers.

It's not magic - they use a combination of technology that navigates the IRS phone tree and holds your place in line. When an agent is about to answer, you get a call connecting you directly. You don't pay for them to wait on hold - you just go about your day until they get someone. The IRS does sometimes give inconsistent advice, but that's actually why getting through is so valuable. I documented the agent's ID number and the specific guidance they provided about foreign embassy income and IRA contributions. Having this documented advice gives you reasonable cause protection if there's ever a question about how you handled the situation on your taxes.

What exactly is a Spousal IRA? Is that different from a regular Traditional IRA? We do file jointly, so this sounds like it might be relevant for us. Also, she's not diplomatic staff - she works in their cultural affairs office, so I think she's considered regular administrative staff. Would that still qualify for any special tax treatment?

A Spousal IRA isn't actually a special type of account - it's just a regular Traditional or Roth IRA that a working spouse can contribute to on behalf of a non-working spouse. In your case, since your wife is working, it wouldn't apply directly. I misunderstood your situation initially. For administrative staff at foreign embassies, the tax treatment depends on the specific tax treaty with that country. Generally, administrative staff don't get the full tax exemptions that diplomatic staff receive, but there might still be special provisions. Some administrative staff are exempt from FICA taxes but still pay federal income tax. The pay stubs should indicate if taxes are being withheld.

That's actually terrible advice for retirement planning. Tax-advantaged accounts like IRAs are almost always better than taxable accounts for long-term retirement savings. The tax-free growth over decades makes a massive difference in the final balance.

I wasn't suggesting to completely ignore retirement accounts - just pointing out an alternative since they already have some retirement savings and might want flexibility. You're right that the tax-advantaged growth in IRAs is valuable, but taxable accounts have advantages too - no early withdrawal penalties, no RMDs, and potentially favorable capital gains rates. The ideal approach is usually a mix of both tax-advantaged and taxable accounts to give yourself options in retirement. Plus, with the contribution limits on IRAs being relatively low, many people need to use both types of accounts to save adequately for retirement anyway.