How May I Invest My Stimulus Check? A Few Time-Limited Options to Read Now!

• Author: Jacob Greene
• Posted: 2024-09-15

If you're one of the millions of Americans who received a check under the CARES Act way back in March of this year, the amount you received was likely variable. If you were a single adult, you should have received $1,200 from the IRS, so long as your income last year was under $75,000 if single or $99,000 if married.

If you are considered "head of household", you should have received $1,800. This essentially means you are single but have a dependent. Any additional dependents for both single and married people added $500 for up to three children, making the total stimulus nothing to dismiss.

What If I Made Too Much Money Last Year?

You may not have received anything from the IRS if you made too much money to qualify. However, if you made near the income limit for your filer type but a little over, you should still have gotten something.

On the other hand, many folks made far more money that was reported on their 2019 returns than they will have made by the end of 2020 due to the sky-high unemployment rates seen in this country and around the world during the crux of the COVID-19 pandemic.

If you're in this class, where you made far above the income limits for the check on your last tax return but will make within the limits in 2020, you will still receive a check. However, you first will need to file your 2020 tax return with the IRS. Once the IRS receives this, you should receive either a debit card with your stimulus amount on it or a direct deposit; this is dependent on how you filed your taxes and where you specified you wanted returns sent on your return form.

Where Can I Invest It?

Many people aren't quite sure how to classify their stimulus income. To be clear, we are discussing the stimulus check, a one-time fixed amount that was sent out. Unemployment Insurance (UI) income is an entirely different matter.

Technically, the IRS counts this money as "unearned income". Ordinarily, this would mean that you wouldn't pay Social Security and Medicare taxes on it, but you would owe all other income taxes applicable. However, Congress chose to classify the $1,200+ stimulus check as what is called a "refundable tax credit advance". This means that they effectively gave all eligible citizens a tax credit of $1,200, but in advance of when they filed taxes.

A "refundable" tax credit means that even if you don't owe that amount in taxes, you can still get the amount of the credit in cash. That's why it was possible for the income to be distributed via direct deposits and checks.

If You Worked

Where you can invest the money heavily depends on whether you have any earned income this year. Unfortunately, this excludes Social Security benefits and SSDI benefits. It also excludes most types of incomes from insurance through your workplace, such as disability insurance.

However, if you made money through any type of work that you will report to the IRS, there's good news. You may invest up to whatever amount you earned up to $6,000 into any type of IRA.

If so, you should not opt to put it in a standard IRA! A standard IRA's main benefit is that you don't pay income tax right away but pay it later when you're in a lower tax bracket. This makes no sense for money on which you don't owe any taxes. Instead, a Roth IRA is a much better choice if you can afford to invest your stimulus check. A Roth IRA is a "post-tax" contribution; in this case, assuming you've made at least that amount working, you may contribute to it.

Even better, if you have maxed out your 401(k) plan per your workplace's and the IRS's limits on it, you are still eligible to contribute to an IRA or Roth IRA, though the amount you may put in is subjected to strict income limits. It pays off to check out exactly how much you can legally contribute beforehand. This will save you from potential fines, penalties, and even imprisonment if you IRS determines that you either knew or should have known that you earned too much to be eligible to contribute to such an account!