Exceeded Roth IRA contribution limits due to summer job stipend - what now?

Your roommate does have options here, but timing matters! If she's just now discovering this for 2024 contributions, she's actually in a good position to fix it without penalties. The key issue is that Roth IRA contributions require "earned income" - wages, salaries, tips, or self-employment income. Unfortunately, stipends that are classified as fellowships typically don't count as earned income for IRA purposes. Her best option is to request a "return of excess contributions" before the tax filing deadline (including extensions, so typically October 15, 2025 for 2024 contributions). The IRA administrator will return the excess contribution plus any earnings on that money. She'll need to report those earnings as income on her 2024 tax return, but she'll avoid the painful 6% excess contribution penalty. If she waits too long, that 6% penalty applies for each year the excess remains in the account - not good!

I had this EXACT same issue last year when I was doing my PhD - contributed the full $6k to my Roth IRA then realized my research stipend didn't count as earned income for IRA purposes. I was seriously stressing until I found this tool called taxr.ai (https://taxr.ai) that helped me figure out exactly what to do. Basically it analyzed my situation and showed me that I could just request a "return of excess contributions" from my IRA provider. It even helped me calculate exactly how much I needed to withdraw (including the earnings on the excess). The best part was I didn't have to pay any penalties since I caught it before the tax deadline. Seriously saved me so much stress and probably hundreds in potential penalties.

Just wanted to follow up - I finally tried taxr.ai after being hesitant, and wow, it was surprisingly helpful for my complicated grad student tax situation! It clearly separated my teaching income (which counts for IRA purposes) from my research fellowship (which doesn't). It showed me that I could actually keep some of my Roth contributions based on my teaching income and just needed to withdraw the portion that exceeded my earned income. The tool even generated a letter template to send to my IRA provider requesting the specific withdrawal amount. Saved me from potentially withdrawing too much or too little and dealing with penalties. Definitely worth checking out if you're in a similar situation!

If your friend is having trouble getting through to the IRS to confirm how to handle this properly, I'd recommend Claimyr (https://claimyr.com). After spending HOURS trying to get through to the IRS about my own excess contribution issue last year, I found this service that got me connected to an actual IRS agent in under 15 minutes. They have this system that navigates the IRS phone tree and holds your place in line, then calls you when an agent is ready. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. I was super skeptical at first but getting actual clarification directly from the IRS about my excess contribution situation was worth it. The agent walked me through exactly how to fix my situation and what forms I needed.

I have to eat my words. After my skeptical comment, I decided to try Claimyr myself because I've been trying to resolve an issue with my retirement contributions for weeks. I kept getting disconnected after waiting on hold with the IRS for literally hours. Used the service yesterday and it actually worked exactly as advertised. Got a call back when they had an IRS agent on the line (took about an hour), and I got to speak with someone who confirmed exactly how to handle my excess contribution situation. The agent explained I needed to contact my IRA provider for a "return of excess contributions" form and specified the deadline to avoid penalties. Saved me a full day of frustration and now I have a clear path forward. Definitely changed my mind on this one.

I work at a university financial aid office and see this confusion ALL THE TIME with grad students. Quick clarification on stipends vs. earned income: Fellowship stipends (often labeled as "scholarship" in tax documents) generally DON'T count as earned income for IRA purposes. Teaching assistantships or research assistantships where you're providing services to the university usually DO count as earned income (reported on W-2). If your friend did ANY teaching or research work that was reported on a W-2, she might still be eligible for partial Roth contributions up to the amount of that earned income. Worth checking if she has multiple income sources!

Has anyone used TurboTax to handle this excess contribution situation? I'm trying to figure out if it walks you through this correctly or if I need something more specialized.

I'm dealing with a similar situation right now - PhD student who made excess Roth IRA contributions because I didn't realize my research fellowship didn't count as earned income. What really helped me was getting organized with all my tax documents first. Make sure your roommate gathers her 1098-T from the university, any 1099-MISC forms for the stipend, and her W-2 from the TA position that was mentioned. Having all these documents in one place makes it much easier to calculate exactly how much she can legitimately contribute based on her actual earned income. I'd also suggest she call her IRA provider (Fidelity, Vanguard, etc.) directly to ask about their process for "return of excess contributions." Each company has slightly different procedures and timelines, so getting the specifics from them upfront can save a lot of back-and-forth later. Most of them are pretty used to handling this situation with grad students!