TurboTax says my Roth IRA contribution was too high but I have taxable fellowship income

[august14]

I have seen all over the internet that taxable fellowship income now counts as compensation eligible to make contributions to an IRA/Roth IRA. But TurboTax is telling me my Roth IRA contribution is too high because it is only counting W-2 income. What can I do?

Here's the applicable change in the law, I believe:

https://www.congress.gov/bill/116th-congress/house-bill/1865

"SEC. 106. CERTAIN TAXABLE NON-TUITION FELLOWSHIP AND STIPEND PAYMENTS TREATED AS COMPENSATION FOR IRA PURPOSES.

(a) IN GENERAL.—Paragraph (1) of section 219(f) of the Internal Revenue Code of 1986 is amended by adding at the end the following: ‘‘The term ‘compensation’ shall include any amount which is included in the individual’s gross income and paid to the individual to aid the individual in the pursuit of graduate or postdoctoral study.’’. (b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years beginning after December 31, 2019."

[fanfare · Accepted solution]

a) you can use tax software that handles this correctly.

b) since IRS doesn't open till feb 12, you can wait for an update that might fix this problem.

[macuser_22]

How is the fellowship being reported to you - on what form?

The IRS regulations for this are still in the draft state and have not yet been released.   When they are TurboTax will probably be updated to comply.

The draft regulations are here:

https://www.irs.gov/pub/irs-dft/p590a--dft.pdf

[august14]

Hah! Thank you, yes, I will wait a bit and hope they will fix it.

[august14]

The fellowship income isn't reported on any form- which is standard for a variety of graduate/postdoctoral fellowships in higher ed, including the most common ones, like NSF GRFP.

[jac0bean9]

Did this problem ever get fixed?

[MarilynG1]

You may need to enter your fellowship income in the Education 1098-T section to get the income to show as Earned Income on Form 1040 and qualify for a Roth IRA contribution.

per Champ @Hal_Al:

"..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." 

Click this link for more info on Taxable Scholarship and IRA Contribution.