Roth IRA contribution limits and 1099 Income (funds, pay, taxes, accounts)

[smitity]

I have a question for any Tax/IRA wizzes here, maybe someone else has had a similar experience.

My job pays me 50K in the form of a "Taxable Grant" reported on form 1099-G, I also have a Roth IRA which I contributed $4000 to. This is the first year where all my income has come from this 1099-G, last hear half of my income came from my previous job that payed using a W-2.

According to both TurboTax and TacACT, I have to pay a 6% penalty on my Roth contributions because my earned income is 0, thus 100% of my IRA contributions are considered "Excess Contributions" even though I am below the standard $5000 limit. Is there any way around this? Is it possible that this is just a problem with the software itself not considering my 1099-G with regards to my IRA? In other words, if I filed myself or had a professional do it, would I avoid this penalty? Or does my income not count under any circumstances?

If that's the case can I convert my Roth to a Traditional IRA by 4/15 to remove the penalty?

Thanks for any input and advice!

[MrRational]

Originally Posted by smitity

My job pays me 50K in the form of a "Taxable Grant" reported on form 1099-G

No. It doesn't.

If you had a "job" you would be on their payroll with them contributing toward
SSA/FICA and withholding other taxes etc... and all reported on a W2.

According to both TurboTax and TacACT... my earned income is 0,
thus 100% of my IRA contributions are considered "Excess Contributions"...
Is there any way around this?

Yeah. Get a real job.

Or does my income not count under any circumstances?

Individual Retirement Accounts (IRAs) were introduced in the mid-'70s to help
employees save for retirement and reduce their taxable income... contributions to both
traditional and Roth IRAs can only be made from what the IRS determines to be "earned income."

There is no authoritative answer to this, since the IRS has not included it on any lists of
what is taxable compensation for contribution purposes ... since the Box 6 grant is taxable, the IRS
has been very liberal in accepting contributions made with such funds that are obviously not
investment or pension income.

The question (in YOUR case) comes back to whether this "grant money" you have qualifies as the
wages or salary (or using any other term)... as the earned income of a "job".
I don't think it does.