ROTC Stipend Eligible for Roth IRA Limit Contribution

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Bubbac17

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Nov 14, 2017
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Hello all!

I realize that this question will have to be formally addressed by our CPA, but I wanted to see if anyone on this forum had any experience with this situation.

My DD has about $2,500 of income earned from her Summer 2018 lifeguard job. She also was very kindly provided with a coupe of hundred dollars in high school graduation gifts. Finally, she is also a contracted ROTC Cadet (freshman) and has received her book stipend and her monthly stipend for her fall 2018 ROTC Scholarship.

She is wanting to invest the maximum amount she can into a Roth IRA for 2018. The Roth Rules allow an individual to invest up to the LESSER of the max (I think it is $6K) or the total of earned the indivudual’s earned income.

So the question becomes, is the ROTC stipend payment considered earned income? I know the payments are not taxable, but a google search has proven to provide links with very contradictory information about what can and cannot be considered in determining the max allowable Roth contribution.
 
Bubbac17 said:
Hello all!

I realize that this question will have to be formally addressed by our CPA, but I wanted to see if anyone on this forum had any experience with this situation.

My DD has about $2,500 of income earned from her Summer 2018 lifeguard job. She also was very kindly provided with a coupe of hundred dollars in high school graduation gifts. Finally, she is also a contracted ROTC Cadet (freshman) and has received her book stipend and her monthly stipend for her fall 2018 ROTC Scholarship.

She is wanting to invest the maximum amount she can into a Roth IRA for 2018. The Roth Rules allow an individual to invest up to the LESSER of the max (I think it is $6K) or the total of earned the indivudual’s earned income.

So the question becomes, is the ROTC stipend payment considered earned income? I know the payments are not taxable, but a google search has proven to provide links with very contradictory information about what can and cannot be considered in determining the max allowable Roth contribution.
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From my completely personal viewpoint, based on discussions I have seen here and in other sources, the ROTC stipend does not count as earned income for IRA purposes, nor is it taxable, as you have discovered.

Her summer training, though, is something she will receive AD pay for and get a W-2.

ROTC stipends have been around so long that I am sure your CPA can access the applicable rulings.

You are sure to get some posts on this from the many here with ROTC experience in the family.
 
Capt MJ is correct. The ROTC stipend is not earned income and cannot be included in an IRA calculation. I applaud your long range thinking, though.
 
Not a CPA, but I am a CFP.

The ROTC Stipend and book allowance are not earned income. Agree with Capt MJ and Delahanty.
 
For non-posting readers (“lurkers”) new to the mysteries of military pay, cadets and midshipmen at USMA, USNA, USAFA and USCGA receive actual military pay from DFAS, which is taxed, and for which they receive a W-2, and for which they must file an income tax return.

USMMA midshipmen get taxable wages when at sea.
 
Is the stipend included in your overall financial aid package or is it considered more of a subsitence allowance for financial aid purposes?
 
DAVROTC said:
Is the stipend included in your overall financial aid package or is it considered more of a subsitence allowance for financial aid purposes?
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The stipend reference in this thread is NOT part of the college need or merit based financial aid package.

It is offered in conjunction with a military ROTC contract and usually considered a subsistence allowance. With Army ROTC there is also an additional book allowance. In Army ROTC, the stipend is offered to any contracted cadet in good standing, with or without an Army ROTC scholarship.

Army ROTC Reference:
https://arotc.olemiss.edu/scholarship/
 
Capt MJ said:
For non-posting readers (“lurkers”) new to the mysteries of military pay, cadets and midshipmen at USMA, USNA, USAFA and USCGA receive actual military pay from DFAS, which is taxed, and for which they receive a W-2, and for which they must file an income tax return.

USMMA midshipmen get taxable wages when at sea.
Click to expand...

As of 2018 the standard deduction for single filers is $12,200. Income for this amount or less will not have any federal income tax obligation. I imagine this will cover a lot of college students.
 
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