Stipends are NOT Earned Income for Roth IRA Contribution Purposes

[Fatihful Steward]

I was reading a post on WCI, earlier today, where on of my colleagues had to clarify for a young resident, that stipends are not considered earned income by the IRS.

So, if your only source of income is a stipend, you are not eligible to open a Roth IRA.

However, if you're married and your spouse has at least $11,000 of earned income, they can make a Roth IRA contribution on your behalf, under the spousal contribution provision.

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[mvenus929]

Residents are salaried. Students may get a stipend prior to starting residency, but residency is defined as a job (this was a big debate several years ago, where people argued that residents were students and thus not subject to income taxes).

So, I'm not sure which 'young resident' would be getting income exclusively from a stipend.

 

[theWUbear]

I was reading a post on WCI, earlier today, where on of my colleagues had to clarify for a young resident, that stipends are not considered earned income by the IRS.

So, if your only source of income is a stipend, you are not eligible to open a Roth IRA.

However, if you're married and your spouse has at least $11,000 of earned income, they can make a Roth IRA contribution on your behalf, under the spousal contribution provision.

Wow. My residency gives a $3,000 educational stipend on top of my $51,000 salary. The stipend is just thrown at us in July and January as $1,500 bonuses on top of our direct deposit. There are no reporting requirements for documenting their use for educational expenses.

Are you telling me I don't have to report that $3,000 deposited into my account by my employer as income, because my employer's defining the money as a "stipend" deems it not earned income by the IRS?

 

[theWUbear]

I was reading a post on WCI, earlier today, where on of my colleagues had to clarify for a young resident, that stipends are not considered earned income by the IRS.

I've looked this up extensively since you have written it, and every source states that is incorrect - stipends are taxable unless the recipient is a degree-seeking student who uses the funds to further their academic situation. The US Treasury Department (2004) and supreme court (2011) have stipulated that residents are not considered students.

 

[ANCAdoc]

Where it gets complicated is when a fellow is on a training grant for research purposes, such as a T32 (I did this). I got paid monthly, with part of my income as a stipend to subsidize the department. Taxes were not taken out of this "stipend". Fortunately the university tax compliance officer was very helpful (thankfully I found them) and stated I would not get a 1099 but that the tax law was such that I had to file income tax but not FICA. I contacted a highly specialized tax attorney who specializes in university tax law (found a book he wrote on university tax law and emailed him - he responded for free) and he confirmed that. Thus, even in this highly obscure area of tax law it was taxable income and would have allowed me to contribute to an IRA.