Here’s What You Should Do With Your Corona Stimulus Check
There is a bit of light at the end of the Corona virus tunnel, and it’s a welcome shade of green: Under a new stimulus bill signed by President Biden, millions of Americans are eligible to receive stimulus checks in the amount of $1,400, plus an additional $1,400 for each eligible dependent.
For many, the stimulus check is a life raft that will enable them to better manage some of the necessities of day-to-day living such as buying food, paying rent or a mortgage, or paying medical costs. But for those who managed to remain fully employed during the pandemic and are not financially distressed, the stimulus check presents an opportunity to make these unexpected funds work for you or help your community.
Reduce Or Pay Off High-Interest Debt
Although interest rates remain low for mortgages and student loans, credit card interest rates are generally running upwards of 15%. By paying off your high-interest cards, you’ll free up a significant amount of cash, and manage to pay off the entire balance sooner.
Establish An Emergency Fund (Or Add To An Existing One)
An emergency fund can help your ride out some of life’s unexpected difficulties and disruptions such as job loss, expensive home repairs, or health problems (we’re looking at you, COVID!). Financial experts suggest having three to six months’ worth of living expenses available in a savings account that you can tap into when the unexpected happens. If you’re not counting on your stimulus check for essentials, consider starting or adding to an emergency fund.
Start A College Savings Plan
Two things about college savings plans that are good to know: Contributions to a 529 college savings plan grow tax free, and withdrawals aren’t taxed if you apply them to qualified expenses such as tuition or room and board. Because 529 plans have very low minimums, you can invest your entire stimulus check or just a portion of it. Some states offer a tax deduction or credit if you invest in the state’s plan.
Look Ahead To Retirement
Consider using your stimulus check to invest in a traditional or Roth IRA that can enhance your retirement years. The maximum contribution for a 2021 IRA is $6,000 if you’re under the age of 50, and $7,000 if you’re 50 and older. You could deposit your entire stimulus check into your IRA if you don’t need it to pay for essentials or mounting bills.
Support Local Businesses
When you buy a gift card for a local restaurant or other small business experiencing financial difficulties due to the pandemic, you’ll be helping to provide that business with much-needed cash. What’s more, you can use the card to treat someone (or yourself) to a nice meal, a delicious breakfast, a relaxing massage, or a floral bouquet when COVID is in the rearview mirror.
Give It To Someone Or An Organization In Need
If you’re fortunate to have a job that’s secure and your finances are in order, consider setting aside your stimulus check to help others who haven’t been as fortunate during the course of the pandemic. You can deduct part of your donation on your 2021 tax return, even if you claim the standard deduction, because of the “above-the-line” deduction for up to $300 of cash donations. Note that you can’t claim the above-the-line deduction if you itemize; however, you can claim the contribution on Schedule A of your tax return. There’s also pandemic-related relief for 2021 itemizers looking to make major contributions. The amount itemizers can deduct for cash contributions is generally limited to 60% of their adjusted gross income (AGI); any cash donations over that amount can be carried over for up to five years and deducted later. But Congress lifted the 60% of AGI limit for cash donations made in 2020 and 2021, although there’s still a 100% of AGI limit on all charitable contributions.