Graduate and Postdoctoral Students: Contributing to a Roth IRA in 2022

Forum|Forum|3 years ago
December 13, 2022
17 replies
113 views

I'm a graduate student fortunate to receive a scholarship/fellowship grant from my institution that exceeds my tuition and qualified expenses. This results in a stipend that is deposited in my bank account. I would like to contribute some of this income to a Roth IRA. I entered my expected 1098-T information for 2022 in "Deductions & Credits > Expenses and Scholarships (Form 1098-T)" of TurboTax Premier Online, with Box 5 > Box 1 yielding taxable income. When I enter my Roth IRA contribution, TurboTax flags it as an excess contribution because my earned income is calculated as zero. How do I enter my 1098-T information so that TurboTax counts my stipend income toward a Roth IRA contribution?

I'm aware that scholarships/fellowships/stipends were historically not considered "earned income" and therefore could not be contributed to an IRA. But this exception was eliminated due to a 2019 law. Table 1-1 Compensation for Purposes of an IRA in IRS Publication 590-A (2021) was updated in 2022 to include "taxable non-tuition fellowship and stipend payments" in support of graduate or postdoctoral study.

TurboTax Premier Online

Best answer by Hal_Al

Here's a containment that was just made for this issue.
https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/fellowship-stipend-a...

NCperson

Level 15

@JollyErtapenem

here is a good article on the topic and potential confusion.

http://pfforphds.com/is-fellowship-income-eligible-to-be-contributed-to-an-ira/#:~:text=The%202021%20version%20lists%20%E2%80%9Ctaxable,Form%20W%2D2%20reporting%20requirement.

I suspect because the "income" is reported on a 1098-T and not on a W-2, TT flags the Roth Contribution as an issue.

Look at the FAQ in Turbo Tax:

What counts as earned income?

Earned income includes:
- The amount in box 1 of your W-2s
- Commissions
- Self-employment income
- Taxable alimony payments you receive
- Nontaxable combat pay (look on your W-2 in box 12 with a code of Q)

Earned income does not include:
- Rental property income
- Investment income, such as interest income (reported on Form 1099-INT)
and dividend income (reported on Form 1099-DIV)
- Pension or annuity income
- Deferred compensation
- Income from a partnership for which you don't provide services
- Certain amounts that are excluded from your income, such as foreign earned income

it does not list the last type of earned income referenced in the table in publication 590-B (non-taxable tuition and stipend payments )

Might be worth a call the Turno Tax support to understand why that is so.

Hal_Al

Level 15

You may just need to wait for an update. Turbotax handled this properly on 2021 returns (I just tested it to be sure). I also just tried a test on the 2022 software (download Deluxe) and, as happened to you, it is not working properly.

I'll notify TT of the problem.

Q. How do I enter my 1098-T information so that TurboTax counts my stipend income toward a Roth IRA contribution?

A. Normally, all you have to do is check the grad school box at the 1098-T screen and indicate you have taxable scholarship going on line 1 of form 1040 with the SCH notation (starting in 2022, taxable scholarship goes on line 8r of Schedule 1).