If you’re among the 175 million Americans getting a coronavirus stimulus check, one expert says that one of the best ways to use the payment is to pad your retirement savings.
“I know it's so important that people want to go out and buy a brand new TV and then support the economy,” Nicole Middendorf, a financial advisor at ProsperWell Financial, recently told Yahoo Finance (video above). “But the best thing is to save that money for yourself.”
Specifically, Middendorf recommends Americans sock that stimulus — up to $1,200 plus $500 per child — into an individual retirement account, or IRA.
“If you get the stimulus check and you have enough liquid money and you haven't contributed to your IRA for last year,” she added, “put yourself in a better place financially for retirement by adding to your IRA.”
And if you haven’t filed your 2019 taxes yet, Middendorf noted, you’ll also get a tax break from the contribution. You have until July 15 — the extended tax day this year — to make that retirement contribution that is deductible on your 2019 taxes. If you’ve already done your taxes for 2019, then the contribution can reduce your 2020 taxable income when you file next year.
A second round?
Putting some part of the check towards savings has been the case for many Americans.
Almost half of the stimulus check recipients said that they will put some part of the payment towards emergency savings, according to a study of 1,198 recipients from Self.inc, a fintech company. More than 1 in 5 people plan to increase their emergency funds by more than $500.
However, many Americans may be running out of stimulus money already.
The first round was distributed more than a month ago, and many Americans may have already spent theirs. Two in 5 Americans said the stimulus check would last them less than a month, the study found.
A second stimulus payment could offer another chance for many more to put money toward their savings, but it’s still unclear whether a second round will happen.
The House recently passed another coronavirus relief package, dubbed the HEROES Act, sending it to the Republican-dominated Senate where it’s expected to face stiff opposition. The new legislation would provide up to $1,200 per individual with a maximum amount of $6,000 per household.
While the bill likely won’t pass the Senate, experts said another stimulus package may be in the offing and could include another stimulus payout.