Graduate Student Roth IRA Contribution

[timthekat]

My understanding was that prior to 2020, graduate student stipends/fellowships were not viewed as eligible income for Roth IRA contributions, however that changed with H.R. 1865 and the Graduate Student Savings Act. However, TurboTax has not integrated this yet and thinks that I overcontributed to my Roth IRA, making me pay a 6% fee.

[SamS1]

To report stipend income in TurboTax, you must visit Deductions and Credits, Education Expenses section. You must answer all the questions, the taxable amount will be computed as the excess of your scholarship over the qualified education expenses.

1. Federal Taxes
2. Deduction & Credits  
3. Scroll down to Education
4. Select Expenses and Scholarships
5. Follow the prompts… It will be somewhat confusing as you are answering the questions as if you claim an education credit… answer the initial questions and select that you did not receive form 1098-T. You will be asked for school’s name and address, just fill out the program information you are in... You will eventually see a screen "Did (your name) receive a scholarship or grant in 2020? Please enter your stipend in other Scholarships/Grants/Fellowships; this will ensure that the stipend is taxable on line 7 form 1040 as wages.

Once done, you may review your form 1040 and to verify that line 7 of the form looks correct.  You may do so prior to paying for the program:

1. From My Account drop down, select Tools (you must be logged into your tax return)
2. Select View Tax Summary
3. Select Preview my 1040 

[timthekat]

This fixed the problem, thanks!

[liveforflying]

Hi

I received 4000 $ as grad student stipend for working as summer job at local hospital. I didnt receive W2 or 1099. My college says it is stipend so not included in any 1099-T . I followed above steps and put 4000 $ under "Scholarships/Grants/Fellowships"  but still 4000 $ , doesnt show as income . I wanted to move that money to Roth IRA but Turbotax is charging me 6% penalty. What am I missing ?

[DaveF1006]

Your Roth contribution limit in 2020 is $6000 if you are under 50 and $7000 if over 50. If you have already contributed to a Roth in 2020, that contribution may have put you over the contribution limit for the year.

As far as your stipend, your educational expenses probably exceeded your stipend amount.  If so, your educational credit may have been reduced as a result of your stipend. If this is the case, your stipend would not appear as income.

[liveforflying]

Thanks for the quick reply.

My Education expenses, I covered by withdrawing money from my 529 plan and scholarship.  so this way, all my education was funded with scholarship money + withdrawl from 529 plan. 

So I have this 4000 $ which was through work, I want to put all of that in ROTH IRA as that is my only yearly income.  

What shall I do ?

Thank you for your help.

[MarilynG1]

@liveforflying Enter your Stipend Income as 'Other Income'.

Click this link for instructions on How to Report Other Income. 

[liveforflying]

Hello

The link for : How to Report Other Income.   doesnt work.

can you provide correct link ?

Thanks.

[Irene2805]

In order to contribute to a Roth IRA you have to have "earned income."  If you did not receive a W-2 or 1099, you can enter the income as Other Income, using these steps:

1. Click on Federal > Wages & Income   
2. In the Less Common Income section , click on the Start/Update box next to Miscellaneous Income, 1099-A, 1099-C.  
3. On the Miscellaneous Income screen, click on the Start/Revisit box next to Other income not already reported on a Form W-2 or Form 1099. 
4. On the Any Other Taxable Income? screen, click the Yes box.
5. Enter the income on the Other Taxable Income screen, along with a description and click Continue. 
6. You will be brought to the Other Miscellaneous Income Summary.  If you have no more miscellaneous income to report, click Done.

[EDITED 2/11/2021  12:01pm PST]

@liveforflying

[liveforflying]

It worked. 

Thank you so much for your help.

[poorgradstudent]

Hi, my fellowship stipend income is reported on a nec1099 not a 1040. This process ends double counting the income. Is there a workaround for the nec1099?

[ThomasM125]

I don't know why the income would be double counted, unless you entered it in two different places in TurboTax. If you performed services to earn the income and it was reported on a form 1099-NEC, you need to enter it in the Self Employed Income and Expenses section TurboTax under Income and Expenses.

If you didn't perform services for the income and it is considered scholarship income, you need to enter it in the Education section under Deductions and Credits and then Expenses and Scholarships (Form 1098-T).

[poorgradstudent]

The income is reported on a 1099-NEC, so I'm guessing that I don't want to fellow that process for Education section then? If so, how do I remove the IRA penalty? The income should definitely as compensation for IRA purposes. 

[AmyC]

You received an NEC for a fellowship. It should be entered in the Education section only. This turns the NEC into taxable scholarship income which then counts for your IRA. The penalty will be removed. Otherwise, the NEC is for self-employed and there are additional taxes due.

@poorgradstudent

[DadFilesForKids]

Hi @SamS1 ,

Thanks for your time and effort here.

I'm sorry to be pedantic about your step #5:

You instruct, "select that you did not receive form 1098-T" -- meaning, "... even though you did."?

And by entering the Stipend into Scholarships/grants/fellowships the 1098-T form has no information about the Stipend - so the amounts in boxes 1 and 5 are not entered into the 1098-T form in TurboTax, and, in fact, the amount in box 1 is not entered anywhere.

When I look at form 1040 line 7 is "Capital Gain (or loss)"

(I'm using the TurboTax app -- not the online version, but that shouldn't matter)

It seems that the Stipend is recorded on form 1040 line 1, although it's not an exact match; I haven't determined why not yet.

Thanks again for what you do here.

DFFK