Bill Seeks to Help Grad Students Build Retirement Savings

Legislation that would allow graduate students to put funds from a fellowship or stipend in an IRA is before the Senate.

The bill would amend the federal tax code to change the current treatment of such funds, which are taxed as income by federal and state governments but do not qualify as compensation and so cannot be saved in an IRA. Sen. Elizabeth Warren (D-MA) introduced S. 1379 on June 19; Sens. Mike Lee (R-UT), Tim Scott (R-SC) and Ron Wyden (D-OR) are cosponsors.

Sen. Scott noted in a press release about the bill that:

• a majority of doctoral students report that some of their financial support during graduate school comes from fellowships or grants;

• about one-third of all students report that fellowships or grants were their primary source of funding; and

• the median doctoral student takes about seven years to finish a degree, so for most of a decade, a student can be prohibited from saving portions of their income in a tax-advantaged account.

“Our students should not be forced to choose between pursuing higher education and saving for retirement,” said Wyden. The bill “makes a very simple change to the code to fix this inequity,” said Lee; Warren commented that it “opens a door for students who want to do the right thing and start saving early for their futures.”

The bill is before the Senate Finance Committee.