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Edward Jones: How should you use your stimulus check?


By now you know that President Biden signed the law with the U.S. Rescue Plan of 2021, a $ 1.9 trillion package that provides additional relief from the economic and health effects of the COVID-19 pandemic. Although several provisions of this law may affect you, the most important is direct payment. What can this money mean to you?

Edward Jones, financial advisor Nick Clossman

First, here are a few backgrounds: If you’ve adjusted your gross income to $ 75,000 ($ 150,000 for shared files), you’re eligible for a $ 1,400 payout ($ 2,800 for shared files), plus an additional $ 1,400 for each dependent, including full-time students under the age of 24 and adult dependent family members (where the payment goes to a qualified taxpayer, not a dependent member). The payment amount is phased out above certain income thresholds. (If you have already filed a tax return for 2020, the IRS will use this information to determine the eligibility and amount of payments; if you have not already filed a tax return, your 2019 tax return will be used instead). Your payments will not be taxable for 2021.

You may have already received your payment, especially if you have arranged a direct deposit. If you don’t need money for immediate needs, how should you use it?

Here are some options:

• Build (or replenish) your emergency fund. Generally, it is a good idea to have three to six months of living expenses in an emergency fund to pay for unexpected expenses, such as a major car repair or a large medical bill. Without such a fund, you may have to take advantage of your long-term investments, such as an IRA or a 401 (k). Many people whose income has been affected by the pandemic have turned to their emergency funds, so if you are one of them, you might want to take advantage of some of your new fundraising payments. Even relatively small amounts can give you a sense of security, over time you should strive to return the fund to a more robust level.

• Finance your IRA. You can invest up to $ 6,000 in a traditional or Roth IRA or $ 7,000 if you are 50 or older. (Roth IRA contribution limits are gradually being lifted over certain income levels.) If you have already “made the most of” your IRA for 2020, consider using some of your incentive payments for the 2021 tax year.

• Transfer to your pension account. As part of last year’s CARES Act, withdrawal rules have been temporarily relaxed for retirement accounts, such as your IRA and 401 (k), for individuals affected by COVID-19. If you have withdrawn funds from these accounts, you may want to reallocate money (if you are eligible), using some of your incentive payments. Not only will you strengthen your progress toward your retirement goals, but you can realize potential tax benefits because you can exempt all money you file on or before your May 17 tax filing deadline (or even later if you get an extension.) From your tax return for 2020. Otherwise, withdrawals you make will usually count as taxable income over a three-year period. Contact your tax advisor before paying again.

These are not the only purposes for paying incentives – you can also pay off debts or pay into college if you have young children. In any case, use money wisely – it is unlikely that this opportunity will pass you by again soon.

This article was written by Edward Jones for the use of local financial advisor Edward Jones. Edward Jones. Member of SIPC.

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