My daughter received around $15,000 in scholarships over and above her tuition. From what I've read, anything above tuition is taxable. Two questions - 1. Can she open an IRA with part of it? (I thought it had to be earned income, but if it is taxable, isn't that sufficient?) 2. Around $9,000 of the $15,000 was for room and board that was required - it was on board a ship - I mean there was no other option obviously - does that make any difference?
<p>It's taxable. But the taxes you pay will be well worth the aid she received. Everyone MUST have some kind of housing. It's not optional for any college student.</p>
<p>I don't know about the first question but being on a ship would not matter (there are some colleges that require all students to live on campus). The reasoning is that you would pay for room and board for your D no matter where she was. Scholarships are just displacing that need so it is deemed an income.</p>
<p>I believe scholarships are NOT considered earned income. Just take the money you plan to put in an IRA and pay the taxes. Your daughter will get the standard deduction. She will not be paying tax on the FULL amount and her tax will be a small fraction of her scholarship amount.</p>
<p>Remember, in addition to the tuition, add in the fees, books, supplies, and equipment required for courses.</p>
<p>I think the tax bill will only be around $1000, that's not so bad for a $15000 benefit.</p>
<p>An IRA requires earned income of at least the amount that is deposited in the IRA, or in the case of a married couple that one of them has earned income of at least that amount. If your daughter had any income this year, you could stash the equivalent in the IRA.</p>
<p>For federal filing purposes, scholarships and grants are earned income. To be counted as compensation for contributing to an IRA, the amounts must be included in box 1 of a W-2 which is unlikely to be the case.</p>