How should I report graduate fellowship income such that it counts as earned income for the purpose of Roth IRA contributions?

[oxfordsam]

I did not receive  a W-2 or 1099-MISC. Right now, TurboTax says I over-contributed to my Roth IRA, even though fellowship income is now counted as earned income since the SECURE Act became law.

[ColeenD3]

Since you are not an employee, your only alternative is on Schedule C as non-employee compensation. You will have to pay Social Security and Medicare taxes on any profit.

Effective for tax years beginning after December 31, 2019, the new rules state that an amount includible in income and paid to them to aid the individual in the pursuit of graduate or postdoctoral study (such as fellowship, stipend, or similar amount) is treated as compensation for purposes of IRA contributions. Therefore, non-tuition fellowship and stipend income when included in taxable income now counts as compensation in order to make an IRA (both traditional and Roth) contribution. This allows those graduate and post-doctoral students to save more for their retirement than in the past.

SECURE ACT

[dcdad]

Can't graduate fellowships be reported as other taxable income, rather than on Schedule C where it triggers self-employment income? I'm not really self-employed as a graduate student.

The problem I'm having is that Turbotax is not correctly taking that other taxable income into account when calculating how much I'm allowed to contribute to a Roth IRA. It's only looking at "earned income," despite the change in the tax code starting Jan. 1, 2020, with the Graduate Student Savings Act.

[ColeenD3]

It has to be earned income. Other taxable income is not earned. 

Taxable earned income includes:

• Wages, salaries, tips, and other taxable employee compensation;
• Union strike benefits;
• Disability retirement benefits received prior to minimum retirement age;
• Net earnings from self-employment if: 
  • You own or operate a business or a farm or
  • You are a minister or member of a religious order 
  • You are a statutory employee and have income

Earned Income

[oxfordsam]

For what it's worth, everything I've read online suggests that graduate students are indeed not self-employed. I consulted with a local accountant, and they confirmed this. 

I will gladly come back to TurboTax once they find a way to handle my (admittedly unusual) situation.

[ReneeM7122]

Here is an IRS link that discusses Scholarships, Fellowship Grants, and Other Grants.  The IRS has a tool that will help you determine if the fellowship should be included as income or not.  

If it is deemed taxable income, then according to the SECURE Act of 2019, non-tuition fellowship and stipend income when included in taxable income now counts as compensation in order to make an IRA (both traditional and Roth) contribution.

[geipel]

Hello! I'm having the same problem as you had last year. Did you find a solution?

Thanks,

Clayton

[Critter-3]

Scholarships and fellowships you receive while working towards your degree at a college/university (or an accredited educational institution) are generally nontaxable if used for tuition and required fees. You must be a registered full-time or part-time student and use the amounts for qualified education expenses such as tuition, fees, books, supplies, and equipment that is required for the course as set by the educational institution.

Amounts not used for the above expenses are taxable. This information was entered in the Education Expenses section.

Are you reporting a Form 1098-T?   Based on your input, TT thinks you had some taxable scholarship income.    Did you receive any scholarship monies that exceeded the qualified education expenses or used for nonqualified expenses, or were a payment for services? 

  See is this FAQ helps you any:
https://ttlc.intuit.com/questions/2172062-why-is-my-scholarship-taxable

SCH by 1040 line 7 Wages  is  taxable scholarship income.

See FAQ
https://ttlc.intuit.com/questions/2172062-why-is-my-scholarship-taxable 

and how Turbo Tax calculates it
https://ttlc.intuit.com/questions/1901084-how-does-turbotax-calculate-line-7-form-1040-1040a-and-lin... 

Taxable scholarship is any grant or scholarship amount that exceeds qualified educational expenses (tuition, fees and for undergrads, course materials[books]). Loans are not scholarships and are never taxable. 

[Hal_Al]

I did a practice return in TurboTax (TT).  I indicated that I was a grad student and the only income I had was taxable scholarship.  TT allowed me to make an IRA contribution.

Taking the practice return a step further, I indicated that I had $4000 of taxable scholarship but made a $6000 IRA contribution.  TT denied me the extra $2000 contribution. 

So, apparently, 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. 

[Atf1]

IRS Pub 590-A does not use the term "earned income" when talking about contribution limits! It uses the term "taxable compensation." Taxable stipends are taxable compensation. The idea that a taxpayer must have earned income in order to contribute is a misconception.

[rcourt3630]

the 1040 line 1 only says wages for TY 2022.  I was able to enter fellowship income as you stated last year and it appeared on line 1a as SCH as it is suppose to.  This year, however, it ends up on line 8 and is includes in my AGI....however TT is not allowing me to take the $6000 IRA contribution (SECURE ACT of late 2019).  I was able to do so last year because it appered on line 1 as SCH for the $ of fellowship.  How can I get TT to do this???

[Atf1]

@rcourt3630 
Here’s a post related to the changes for tax year 2022—to the best of my knowledge it’s a known issue that they haven’t fixed:

https://ttlc.intuit.com/community/retirement/discussion/error-in-turbotax-handling-of-new-schedule-1...

[MichaelG81]

Yes, for fellowship income reported on a 1098T, it isn't currently allowing ROTH IRA contributions. This is currently confirmed as an issue and is actively being resolved.‌ Plus, now for 2022, the new guidelines state we must report fellowship income on Schedule 1 line 8r.

Click this link to sign-up for notifications for progress updates. Rest assured, TurboTax is working on this issue for our customers. It may erroneously attach a penalty on your contribution lowering your refund or increasing your tax due, and stating you have an excess contribution based on fellowship income. Once fixed you will be notified. 

Lastly, I want to personally thank you for notifying TurboTax of this issue.

@rcourt3630 

@Atf1 

[Chex_Max]

@MichaelG81  The link for signing up for updates doesn't work. Is there any progress on this issue so far? I just talked to an TT agent on phone for an hour with no solution.

[Hal_Al]

The issue has been fixed. So, they've taken down the sign up.