Want two bangs for your stimulus check bucks? You could have it deposited along with your refund directly into your IRA or other tax-favored retirement accounts. (Note that, if you elected for your refund to be directly deposited into an Individual Retirement Arrangement, your stimulus payment will go there as well.) You'll get a tax deduction on next year's return for the deposit, as well as a reprieve if you change your mind...
According to a press release from the Internal Revenue Service, economic stimulus payments directly deposited into IRAs and other tax-favored accounts can be withdrawn tax-free and penalty-free. This relief is available for withdrawn amounts less than or equal to a taxpayer's directly deposited stimulus payment. To qualify for this relief, funds must be deposited into and withdrawn from your IRA account by April 15, 2009, or Oct. 15, 2009, for those who obtain tax-filing extensions.
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| Jennifer D. Meacham, Gather Money Correspondent | ||||
Jennifer's column, "The Bottom Line," is published every week to the Gather Essentials: Money channel. Jennifer is a business and personal finance columnist who covers money matters for RedwoodAge.com and real estate news for RISMedia, and co-authored the best-selling retirement investing guide "IRA Wealth: Revolutionary IRA Strategies for Real Estate Investment" (Square One Publishers, New York). Keep up on the latest news and analysis into how you can take control of your business and personal financial future by joining Jennifer's "Self-Directed Investing 101" network. | ||||
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Comments: 17
Actually it's unlikey that I'll even cash it. For all the value it represents in today's economy, I might as well light it on fire.
Great article!
With the Roth you don't get to deduct your contributions on next year's tax returns, but the huge benefit here is that within five years for certain withdrawals (like a first home, or medical expenses) and by age 59 1/2 for other withdrawals you can take money out of the Roth account and you don't have to count it as income on ANY tax return. It's basically free money at that point.
Meanwhile, with the traditional IRA, deposits you make this year or before April 15 of next year can be deducted from your income for 2008 -- possibly qualifying you for a lower tax bracket and, at the least, lowering your tax burden for the year. On the back end however, the money can only be taken out after age 59 1/2 (there isn't a five year exception like with the Roth) and must be completely taken out by age 70 1/2 (a problem for those who'd rather leave their investments in the account to continue earning tax-sheltered income or to pass it along to their estate). Additionally, the withdrawals must be reported on your tax return in the year you take your withdrawal, and they'll be taxed as income for that year.
Either way, money grows tax-sheltered while held within the IRA accounts. The type of account you choose is up to your individual needs. Plus, you can make a traditional IRA contribution one year to lower your tax burden for that year, and then later roll it over into a Roth account. You'll just pay the income tax on the contribution, reversing the deduction, in the year you roll it over.
Whew.... Is this self explanatory? You probably already knew this anyhow, but just in case.