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Sens. Warren, Lee Team Up on Retirement Legislation

You couldn’t find two U.S. senators much farther apart on the ideological spectrum than Elizabeth Warren (D-Mass.) and Mike Lee (R-Utah) — but they have teamed up on bipartisan legislation to make retirement saving easier.

Specifically, Warren and Lee have introduced the Graduate Student Savings Act of 2016, which would allow funds from a graduate student’s stipend or fellowship to be deposited into an IRA.

While fellowship or stipend funding currently is taxed as income by federal and state governments, it does not qualify as “compensation” and so cannot be saved in an IRA.

According to a press release, a majority of doctoral students report receiving some of their financial support during graduate school from fellowships or grants, and about one-third of all students report that fellowships or grants were their primary source of funding. The median doctoral student takes about seven years to finish a degree — meaning that, for the better part of a decade, a student can be prohibited from saving major portions of her income in a tax-advantaged account. This bill would remove this hurdle so that students and postdoctoral fellows

A doctoral student who saves $1,500 a year for five years of graduate school could have an additional $57,654 at retirement, and a postdoctoral fellow who saves an additional $3,000 for three years could have another $113,253 at retirement (assuming that the graduate student starts saving at age 25, and the doctoral student at age 30; retirement at age 65; a 7.5% interest rate; and adjustment for 2% inflation).

The Graduate Student Savings Act of 2016 would amend Internal Revenue Code Section 219(f) to allow “any amount paid to an individual to aid the individual in the pursuit of graduate or postdoctoral study or research” to be considered compensation for purposes of determining qualified retirement contributions to individual retirement plans.

Supporters of the Graduate Student Savings Act of 2016 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; and Betterment.