Allowed to use stipend to contribute to Roth IRA?

Answers to various questions regarding the SMART Scholarship application process. Includes many tips and statistics.

Allowed to use stipend to contribute to Roth IRA?

Postby annonymous » Sun Apr 08, 2018 11:16 pm

I was wondering if awardees who begin receiving their monthly stipend are allowed to use that money to contribute to an IRA account, specifically roth. According to the rules of the roth, you need to have "earned income" to be eligible to contribute. So is the stipend considered earned income?
annonymous
 

Re: Allowed to use stipend to contribute to Roth IRA?

Postby GuestM » Sun Apr 08, 2018 11:59 pm

I did that and maxed out my Roth contribution for 2017 with stipend funds. I didn't even think about the fine print you mentioned but I haven't been audited or anything yet so I guess it works.
GuestM
 

Re: Allowed to use stipend to contribute to Roth IRA?

Postby NotMe » Mon Apr 09, 2018 8:18 am

I was not able to. I opened an IRA and contributed to it with my stipend funds. When I did my taxes, Turbotax flagged it as an over contribution so I had to remove the stipend funds. While our stipend is taxed income, it is not technically earned income. If you have income from another source you will be eligible to contribute up to that amount, but if the stipend is your only source it will be flagged as an over contribution.
NotMe
 

Re: Allowed to use stipend to contribute to Roth IRA?

Postby Guest1234 » Mon Apr 09, 2018 4:04 pm

When I was in Phase I, I contributed to a Roth IRA and maxed it out. I ended up just paying a little extra in taxes based on a penalty (I think it was for contributing when not making enough to invest in an IRA).
Guest1234
 

Re: Allowed to use stipend to contribute to Roth IRA?

Postby Milo99 » Tue Apr 17, 2018 8:58 am

Since the stipend is taxable income - it most certaintly can be used to purchase a Roth IRA. By "earned income" - the IRS means taxable income.
Milo99
 

Re: Allowed to use stipend to contribute to Roth IRA?

Postby NotMe » Tue Apr 17, 2018 9:52 am

Milo99 wrote:Since the stipend is taxable income - it most certaintly can be used to purchase a Roth IRA. By "earned income" - the IRS means taxable income.


Actually, no. Taxable income is any income which is taxable, earned income is included in this, but so is inheritance, gifts, lottery winnings, etc. Earned income is specifically income which is "earned" in exchange for services rendered, like being an employee. The stipend is not in exchange for services rendered and we are not employees, so while it is taxable income, it is not earned income.

This difference in the definition is to prevent a parent from gifting funds to their dependent so that they can contribute to an IRA.
NotMe
 


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