IRA Contribution

[TAD1965]

The Turbo Tax questionnaire says that my son cannot contribute to an IRA since all of his income is categorized as "Other Income" (Schedule 1 - Line 8z).  He has a full scholarship and a monthly stipend (the "Other Income") for Grad School.  I spoke with the IRS and they agree that he can contribute per Publication 590-A.  However, the software includes a penalty when he includes the contribution.  Any thoughts?  Thanks!

[hbl3973]

TAD1965,

Stipends are a form of taxable scholarship.  You want to report that income on line 8r of Schedule 1.  to do this may require a fudge on the 1098-T form.  I assume the scholarship amount in box 5 is equal to the qualified tuition payments in box 1.  Add the stipend amount to the box 5 scholarship to force the stipend to become taxable scholarship income which does appear in Schedule 1 line 8r.

[BrittanyS]

Yes, he can contribute to his IRA.  You are receiving the penalty due to how the income was reported in TurboTax.  The income will need to be entered as earned income under miscellaneous income.  Stipends are payments used for expenses other than qualified expenses and make their taxable income.  To enter into TurboTax, follow these steps:

1. Click Wage and Income
2. Scroll Down to Miscellaneous Income, Click Start
3. Click start next to "Other Income not already reported on a Form W-2 or Form 1099."
4. Click Yes for "Other Wages Received."
5. Click Continue until you get to "Any Other Earned Income"; Click Yes
6. Click Other and Continue
7. Enter the Description of other income and the amount
8. Click Done

For more information on the taxation of scholarships, see the link below:

Stipends

@TAD1965 

[TAD1965]

Thank You BrittanyS!

By following your recommended steps below, the entry appears on Line 1h of the Form 1040.  Is that correct?

     TAD1965

[TAD1965]

Thank You hbl3973!

  TAD1965

[hbl3973]

TAD1965,

Yes, that is correct, BrittanyS's method puts in on line 1h of Form 1040. 

BTW, I've requested that the TurboTax folks look into stipend income and provide explicit guidance for future taxpayers.  It could be as easy as including stipends as an example of miscellaneous taxable income.