What to do with your stimulus check

As of May 18, the IRS has sent out 140 million stimulus checks, with around 10 million more to send. The funds are expected to help people pay their expenses and jump-start the economy, which has been in decline since the coronavirus hit U.S. soil.

This money — $1,200 for individuals with adjusted gross income (AGI) of $75,000 or less, $2,400 for couples filing taxes jointly with AGI of $150,000 or less, plus $500 for each child under 17 — is double the amount Americans received in 2008, when individuals got up to $600 to help them weather the recession.

Lawmakers are debating whether to release a second round of stimulus money. The Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, H.R. 6800, which was passed by the House of Representatives on May 15, would give individual Americans a second $1,200 check ($2,400 for married couples), plus $1,200 for each dependent (up to three dependents).

Much of what individuals will do with the money depends on their income level, job situation, family needs, and other factors. Some will need to pay immediate expenses, while others will have more flexibility. “The more secure your income stream, the more strategic you can be with those funds,” noted Kelley Long, CPA/PFS, a personal finance coach in Chicago and Consumer Financial Education Advocate for the AICPA.

Long and two other CPA financial planners offer the following guidance on how to best use your stimulus check:

Don’t spend the money before it arrives. It’s great to receive “free money,” but don’t spend the check before it’s in your mailbox or bank account, since you may need this money later, advised Anthony Love, CPA/PFS, an associate at Goldman Sachs Personal Finance Management in Houston.

Pay your bills but prioritize. If you need this money immediately, decide where it can best be used. Most importantly, keep food on the table for you and your family, Love said.

Also, think of how you can best use the money to keep your credit score healthy, Long said. For instance, you may not need to spend the stimulus money on housing costs. Instead, you may be able to receive a payment delay on your mortgage (if you have a federally backed loan) or rent by speaking with your bank or landlord. Instead, you could use the stimulus funds to help pay down loan or credit card debt, which come with high interest charges that continue to add up. “If you are going to pay 17% interest on your credit card, then it makes sense to pay it off,” Long said.

Create an emergency fund. If you can pay this month’s bills but don’t have enough funds saved up to pay several months of expenses, consider creating an emergency fund to be used later, when you most need it. “The emergency fund keeps your family alive and fed when you have disruptions in your income,” such as weather events, job losses, or health issues, Love said.

Invest for the future. If you don’t need the stimulus money now, transfer the funds into one of several investment vehicles. You have until July 15 to make a 2019 contribution to a Roth IRA, which offers tax-free growth and allows you to withdraw contributed funds at any time without taxes or penalty, and to withdraw earnings tax-free once you are over age 59½ and the account has been open for five or more tax years, Long said.

Given the recent market crash, you could invest in stocks or mutual funds. “Now is the time to buy for the future,” since there are many great deals to be had, noted Louis Bonasera, CPA/PFS, a financial planner with The Financial Advisors in Newburyport, Mass.

Contribute to a health savings account. Alternatively, consider putting the stimulus money into your health savings account, if you are eligible to make contributions. These accounts allow you to withdraw money for health care purposes at any time tax-free, and you have until July 15, 2020, to make a deposit for 2019 contributions, which will be deductible on your 2019 taxes, Long said.

Contribute to charities or local businesses. If you don’t need the money now, another option is to help those in your local community, such as food banks, churches, and struggling small businesses. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, allows any individual an above-the-line $300 charitable contribution deduction in 2020, if he or she doesn’t itemize deductions, Long noted. The CARES Act also increased the AGI limitation on charitable contributions for 2020 to 100% of AGI for individuals. The limit on food contributions was increased to 25% of aggregate net income (or taxable income in the case of corporations) for 2020.

About half of Love’s clientele, mostly retirees of Fortune 1000 companies, are receiving stimulus checks and using these funds to support local charities and businesses, while also possibly qualifying for deductions on their taxes for 2020, he said.

— Cheryl Meyer is a California-based freelance writer. To comment on this article or to suggest an idea for another article, contact Courtney Vien, a JofA senior editor, at Courtney.Vien@aicpa-cima.com.