Grad students could fund IRAs with stipends under Senate bill

The bipartisan legislation aims to encourage saving by fixing a wrinkle in existing law

Jun 19, 2017 @ 1:00 pm

By InvestmentNews

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A bi-partisan Senate bill that would allow funds from a graduate student's stipend or fellowship to be deposited into an Individual Retirement Account has been introduced by Elizabeth Warren (D-Mass.), Mike Lee (R-Utah), Ron Wyden (D-Ore.) and Tim Scott (R-S.C.).

Called the Graduate Student Savings Act of 2017, it addresses a quirk in current tax law which taxes fellowship or stipend funding as income by federal and state governments, even though such income does not qualify as "compensation" and, therefore, cannot be saved in an IRA.

"Saving for retirement is tough enough, but it's even more difficult for graduate students and postdoctoral fellows who can't designate a portion of their earnings to tax-deferred accounts," said Sen. Warren in a press release. "This bipartisan bill opens a door for students who want to do the right thing and start saving early for their futures."

A majority of doctoral students report receiving some of their financial support during graduate school from fellowships or grants, and about a third of all students report that fellowships or grants were their primary source of funding, the release announcing the bill said. The median doctoral student takes about seven years to finish a degree, which translates into a student being prohibited from saving portions of his or her income in a tax-advantaged account.

Supporters of the Graduate Student Savings Act of 2017 include Fidelity Investments; the International Union, United Automobile, Aerospace, & Agricultural Implement Workers of America (UAW), Service Employees International Union (SEIU); National Association of Graduate-Professional Students (NAGPS); TIAA; Betterment; and American Federation of Teachers (AFT).

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