Retirement tax questions

@wkee57 

Having done further research, I found this extract on page 1 of IRS Pub 970:

Individual retirement arrangements (IRAs)  

You can set up and make contributions to an IRA if you receive taxable compensation. A scholarship or fellowship grant is generally taxable compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. 

However, for tax years beginning after 2019, certain non-tuition fellowship and stipend payments not reported to you on Form W-2 are treated as taxable compensation for IRA purposes. These include amounts paid to you to aid you in the pursuit of graduate or postdoctoral study and included in your gross income under the rules discussed in this chapter. 

Taxable amounts not reported to you on Form W-2 are generally included in gross income as discussed later under Reporting Scholarships and Fellowship Grants. For more information about IRAs, see Pub. 590-A and Pub. 590-B. 

Also, in this IRS document, it states not to report scholarships or fellowship grants on Form 1099-G. So the institution was wrong in reporting the grant on form 1099-G.

So, if your grant corresponds to the description above, please proceed as follows in TurboTax Online so that your grant is recognized as earned income and allows you to contribute to a Roth IRA.

1. Enter data from your form 1099-G in the Expenses and Scholarships section of TurboTax under Deductions and credits
2. Enter or Add the recipient as a student
3. On the Education Summary page, click Start on Scholarships/Grants (for all schools)
4. On the next page, answer Yes and enter the amount in Other Scholarships/Grants/Fellowships
5. Continue to the end of the Education interview
6. Next go to the IRA contribution section by searching IRA contributions and jumping to IRA contributions
7. Enter the Roth IRA contributions and continue until you arrive at a page titled How much of the Taxable Scholarship was for Graduate or Post-Doctoral Studies?
8. Enter the amount of the grant
9. Your contribution will be accepted.