Contributing to a Roth IRA with Scholarship income - Is it Excess or not?

[tapank]

Hello,

What a PhD student gets grants/scholarship and they get only 1098T where they get paid more (box5) than the tuition and fees (box1). They have to show the difference as taxable income. And they are assessed to pay taxes after standard deduction which can be few thousand in taxes. There is no W2, only 1098T.

They are paying taxes, can they not save in IRA or RothIRA? If they contribute, will that be considered as excess contribution and pay penalty? Can you please clarify?

Thanks,

tapank

[AmyC]

1. Yes, they can contribute to an IRA.

2. No, there is no excess contribution if they stick to the rules.

About Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) page 7 shows scholarship income does qualify as compensation for purposes of an IRA and you can review the rules for your situation and type of IRA.

[tapank]

Thanks you so much for your help. 

My daughter is using H&R SW for this year's tax filing. The SW is showing that she can not contribute to IRA, amount = $0. Then Next year there will be a penalty as excess IRA payment. Can you kindly advice?

Thanks again.

tapank

[AmyC]

I can only think that either it wasn't taxable or you entered something differently. Again, the best thing to do is review your situation in the pub. Here is the chart from About Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) :

@tapank