Author Topic: F32 NRSA income  (Read 3723 times)

Magclaw

  • 5 O'Clock Shadow
  • *
  • Posts: 33
F32 NRSA income
« on: July 20, 2015, 12:02:38 PM »
Hi,
My wife is currently on a postdoctoral fellowship from NIH, a F32 NRSA scholarship. The scholarship is about 50k/year and is only subject to federal tax.
We are trying to reduce our taxes as much as possible and I am currently maxing out my 403b, and we both contribute the most we can to our traditional IRAs.
My question is can she contribute to something else similar to a 403b, individual 401 etc., to reduce our tax liabilty?

Thank you
« Last Edit: July 20, 2015, 12:04:10 PM by Magclaw »

beltim

  • Magnum Stache
  • ******
  • Posts: 2804
Re: F32 NRSA income
« Reply #1 on: July 20, 2015, 12:10:12 PM »
Unfortunately no.  Other than an IRA, the other tax-advantaged accounts all have to be offered by employers, or you have to be self-employed (which you are definitely not as an NIH postdoctoral fellow).

In fact, if you didn't work, your wife wouldn't even be able to contribute to an IRA because her fellowship is not considered "earned income" which is the requirement for IRA contributions.  It's a silly rule, but it's also what allows her to be exempt from Social Security.

Magclaw

  • 5 O'Clock Shadow
  • *
  • Posts: 33
Re: F32 NRSA income
« Reply #2 on: July 20, 2015, 02:27:38 PM »
The irony is that receiving the award, which is suppose to be prestigious has alot of drawback.
1. I am unable to contribute to contribute pretax dollars (5k) for dependent care since she has no reportable income.
2. They took away her life insurance (not so bad since it would not cost me so much to add her to mine)
3. They stopped contributing to her pension (used to be 2% of 50k per year).
4. They took away her 403b match (used to be 2% if you contributed 4% of 50k per year).
5. Took away her ability to put away 18k/year in a 403b.
6. They also switched our childs health insurance who she was covering to posttax dollars. I fixed that by switching our child to my insurance.

This is compared to her situation before getting the award, and what her coworkers doing the same work enjoy.

What is ironic is that the award is for about 70k, and the institution gets the extra 20k.

beltim

  • Magnum Stache
  • ******
  • Posts: 2804
Re: F32 NRSA income
« Reply #3 on: July 20, 2015, 02:35:53 PM »
Yes, the NIH fellowships definitely pay below-market stipends and it's made worse when you consider the benefits.  It's made yet worse when you realize that although institutions are allowed to supplement the NIH benefits, they're not allowed to do so from federal funds - which is the overwhelming majority of research dollars.

It wasn't so bad when a postdoctoral fellowship was considered a 1-2 year appointment, but people are doing postdocs for longer and longer.  Heck, the NIH now has fellowship programs that fund you for 5 years of a postdoc that you're not competitive for until you've already done 1-2 years of a postdoc.

Meanwhile, starting salaries in industry for newly-minted PhDs are significantly higher.

Cathy

  • Handlebar Stache
  • *****
  • Posts: 1046
Re: F32 NRSA income
« Reply #4 on: July 21, 2015, 08:51:53 PM »
...her fellowship is not considered "earned income" which is the requirement for IRA contributions...

In the language of the statute, the relevant requirement for IRA contributions is "compensation". For the purpose of the IRA statutes, the term "compensation" includes "earned income"; and the term "earned income" refers exclusively to a subset of "net earnings from self-employment" and does not include employee wage income.

A previous post of mine discusses this issue in more detail: http://forum.mrmoneymustache.com/ask-a-mustachian/new-to-usa-need-advice-on-doing-the-right-thing/msg686962/#msg686962
« Last Edit: July 21, 2015, 09:01:28 PM by Cathy »

beltim

  • Magnum Stache
  • ******
  • Posts: 2804
Re: F32 NRSA income
« Reply #5 on: July 21, 2015, 09:15:24 PM »
...her fellowship is not considered "earned income" which is the requirement for IRA contributions...

In the language of the statute, the relevant requirement for IRA contributions is "compensation". For the purpose of the IRA statutes, the term "compensation" includes "earned income"; and the term "earned income" refers exclusively to a subset of "net earnings from self-employment" and does not include employee wage income.

A previous post of mine discusses this issue in more detail: http://forum.mrmoneymustache.com/ask-a-mustachian/new-to-usa-need-advice-on-doing-the-right-thing/msg686962/#msg686962

Cathy is right that the relevant requirement is "compensation" and not "earned income" for an IRA - but it doesn't matter for the OP because accordingly o the IRS an F32 is neither.   The F32 stipend doesn't qualify you for the EITC either, where the standard is "earned income."

Cathy

  • Handlebar Stache
  • *****
  • Posts: 1046
Re: F32 NRSA income
« Reply #6 on: July 21, 2015, 09:18:39 PM »
No opinion was being offered on this thread. It just seems like a good chance to link to my previous post.

The earned income tax credit ("EITC") has its own eligibility requirements which are used only for that credit: 26 USC 32(c)(2). There are a variety of exotic differences between the requirements for an IRA contribution compared to the EITC but that will have to wait for another thread where it is more relevant.