Student Stipend 1099-MISC for Roth IRA
I am a student in a non-compensatory role who receives a stipend categorized under a 1099-MISC every year. When I put it into the software, it notes that I have an excess Roth IRA contribution this year due to the 1099-MISC not counting as "earned income". Is that correct? A few sources online I've seen note that since 2019, 1099 income is treated as taxable income (Solved: Graduate Student Stipend for Roth). Is my understanding incorrect, or is this something I need to correct in the software?
Answers
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Hello vyw2,
Yes, you are correct about the stipend needing to be reported as taxable earned income to qualify for a Roth IRA contribution. I reviewed the software and entering it this way will work.
In the software, select Income > Other Income > scroll down to: Taxable Scholarships or Grants.
When it asks, "Did you receive a scholarship or grant that was NOT used to pay for tuition, books, or other qualified education expenses?" Select "Yes," and enter the income here.
On the second question that asks, "Are any of your scholarship or fellowship grants entered above from graduate or postdoctoral fellowship or stipend payments?" Enter "Yes." If you had federal taxes withheld, enter those as well as the EIN number on your form. Click Save and Continue at the bottom.
The following screen will ask: Taxable Graduate Student Stipends
"Enter how much in scholarship or fellowship grants that are related to graduate or postdoctoral fellowship or stipend payments:"Entering the taxable amount here will then enter the income as earned income on form Schedule 1, line 8r, which will allow you to contribute to a Roth IRA or Traditional IRA.
You may also want to review your entries on the IRA Contributions page.
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Thank you!
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Hi there, I have a similar problem. I received a 1099-MISC and have income in box 3. The income I earned qualifies under the IRA as "A payment or series of payments made to individuals to achieve a specific objective, produce a report or other similar product, or improve or enhance a literary, artistic, musical, scientific, teaching, or other similar capacity, skill, or talent of the grantee." This was fellowship income. How can I enter this so it qualifies as "earned income" so I do not receive a penalty for Roth IRA contributions. Would I follow the steps above? This is not a graduate fellowship, it is a kind of a post graduate school fellowship.
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Hi MSM,
Great question, and it depends on the specific nature of your fellowship. The SECURE Act provision that allows fellowship and stipend income to count as earned income for IRA contribution purposes applies specifically to amounts paid "to aid you in the pursuit of graduate or postdoctoral study," as stated in IRS Publication 590-A (https://www.irs.gov/publications/p590a).
Here's how the two scenarios break down:
1. If your fellowship is tied to graduate or postdoctoral study or research, then yes, the same steps from the prior response would generally apply. You'd enter it under Income > Other Income > Taxable Scholarships or Grants, answer "Yes" to both questions about the scholarship not being used for tuition and about it being from a graduate or postdoctoral fellowship, and enter the taxable amount on the following screen. This routes the income to Schedule 1, line 8r as earned income, which supports your Roth IRA contribution.
2. If your fellowship is not specifically for graduate or postdoctoral study — for example, it's a post-school fellowship focused on developing a skill, producing a work, or achieving a specific objective — then the SECURE Act exception generally would not apply to that income. In that case, the income in Box 3 of your 1099-MISC would typically not count as earned income for IRA purposes, and the excess contribution penalty would stand.
The key question is whether your fellowship was specifically awarded to support graduate or postdoctoral academic study. If you're unsure which category applies to your situation, you may want to review the fellowship terms or check with the organization that issued it before filing.0 -
Do I need to claim the total stipen?
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Hello Jcberg! Generally, yes, you would need to report the full taxable amount shown on your 1099-MISC. The IRS requires that the income be included in your gross income for it to count as compensation for IRA purposes at all. Per IRS Publication 590-A, the fellowship or stipend payments must be "included in your gross income" to qualify as earned income for IRA contribution purposes.
If any portion of the stipend was used for qualified education expenses such as tuition and required fees, that portion may be excludable from income under the rules in IRS Publication 970. However, any amount you exclude from income would not count toward your IRA compensation limit either.0
