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ProSeries needs to update immediately - Graduate Student Savings Act

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ProSeries needs to update immediately - Graduate Student Savings Act

mdalh

ProSeries needs to update their software to allow for Traditional and Roth IRA contributions based on fellowship income that is taxed as other income instead of earned income. Unless this fix is instituted in the software, the taxpayer is charged the 6% excise tax on the contribution and this is no longer correct.

Up until 2019, fellowship or training grant income (reported on a Form 1098-T or Form 1099-MISC or not reported at all) was not eligible to be contributed to an IRA. Certain legislation, the Graduate Student Savings Act (GSSA), which fixes this problem, has been proposed a few times since 2016, but never passed. However, at the end of the 2019 Congressional session, the text of the GSSA was passed and signed into law as part of an omnibus spending bill (H.R. 1865)Specifically, starting on January 1st, 2020, the definition of “taxable compensation” for the purpose of contributing to an individual retirement arrangement or IRA was  updated to include taxable fellowship income not reported on a W-2.

 

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3 Comments
qbteachmt
Level 15

You are referring to the SECURE Act.

"reported on a Form 1098-T or Form 1099-MISC or not reported at all"

But this is from the IRS:

Reminder

Individual retirement arrangements (IRAs). You can set up and make contributions to an IRA if you receive taxable compensation. Under this rule, a taxable scholarship or fellowship grant is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. For more information about IRAs, see Pub. 590-A and Pub. 590-B.

qbteachmt
Level 15

I don't know if this helps, but here is the source and here is why the comment regarding 1098-T doesn't apply:

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.’’.

BobKamman
Level 14

While IRS was updating Pub 970 they forgot how they had updated Pub 590-A:

Certain taxable non-tuition fellowship and stipend payments. For tax years beginning after 2019, certain taxable non-tuition fellowship and stipend payments are treated as compensation for the purpose of IRA contributions. Compensation will include any amount included in your gross income and paid to aid in your pursuit of graduate or postdoctoral study.

That's why they call it guidance.  It involves some guys at IRS who dance around trying to keep up with legislation.  

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