My son has over $7,000 in taxable scholarship income. The income is being reported on line 1 on his 1040 (not reported on a W-2) on the dotted line next to line 1 with the notation SCH $7,000 (as per IRS pub 970 directions). The million dollar question is, can my son contribute to a ROTH IRA based on these taxable scholarships? His W-2 income from working is only about $700.
We have researched this topic and cannot come to a sure answer. Some of the research issues are that the IRS seems to now like to provide updated guidance on graduate students with fellowships. My son is not a grad student and does not have a fellowship. He just received much more scholarship money then the cost of his qualified educational expenses.
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The IRA contribution is allowed without penalty if you report the scholarship income on line 1 of your form 1040, which is how it will be treated if you enter it in TurboTax using the form 1098-T entry screens.
Thank you for your quick reply. It is just a twist on the whole, you need earned income to contribute to an IRA and earned income is reported on a W-2. In this case, we do not have a W-2 representing his taxable scholarship income.
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