As $78 billion in economic stimulus checks pour into American pockets,
the American Institute of Certified Public Accountants reminds taxpayers
that saving the money will compound the benefit of the payments.
“You’ll get a larger
benefit from the economic stimulus payment if you save it, and it’s
patriotic,” says Tom Ochsenschlager, AICPA
vice president of taxation. “Dollars invested
in all types of savings vehicles make their way back into the capital
markets and help keep the economy running. You don’t
have to make a big purchase to be patriotic.”
Ochsenschlager recommends adding to or starting a tax-deferred
retirement plan such as a 401(k) account if you have earned income at
least equal to the amount of the stimulus check you received. “It’s
one of the tax code’s best deals,”
he says. “Investing in these types of plans
will reduce taxable income and bolster long-term retirement savings.
Taxpayers can get an added bonus from their stimulus payment if they ask
employers to increase their 401(k) contribution by the amount of the
stimulus payment or if they make an IRA contribution, because it further
reduces their taxable income.” He notes that
contributing to a Roth IRA does not result in an immediate tax break,
but that when withdrawals are made from these accounts no tax has to be
paid on the amount withdrawn because tax was paid on the money when it
was contributed.
With education costs continuing to rise, Ochsenschlager says taxpayers
may want to consider using the economic stimulus payment to make a
contribution to a qualified tuition plan; these plans are commonly
referred to as 529 plans. While contributions are not deductible on a
taxpayer’s tax return, distributions from the
plan, including the earnings of the plan, generally are not taxable.
Saving the stimulus payment in an interest-bearing savings account can
be a good idea. “There’s
no tax benefit to putting money in a savings account, but all Americans
need to have an emergency cash reserve, and savings accounts are easily
accessible,” Ochsenschlager says. For
longer-term savings, he says taxpayers could consider buying municipal
or U.S. Treasury bonds. Interest from municipal bonds is generally
exempt from federal tax, and interest from U.S. Treasury bonds is exempt
from state and local income tax.
If taxpayers aren’t going to save the money,
Ochsenschlager recommends that another smart way to boost the impact of
the stimulus payment is to pay down credit card or other high-interest
debt so that interest payments don’t steal so
much from taxpayers’ wallets.
Ochsenschlager points out all Americans receiving an economic stimulus
payment get an automatic tax break because the economic stimulus
payments are not taxable.
For ways to save, visit the AICPA’s 360
Degrees of Financial Literacy Web site (www.360financialliteracy.org).
The Institute leads this national public-education effort and sponsors a
related Ad Council campaign, Feed the Pig (www.feedthepig.org).
Feed the Pig is designed to help Americans ages 25 to 34 years old save
for long-term financial security.
About the AICPA
The American Institute of Certified Public Accountants (www.aicpa.org)
is the national, professional association of CPAs, with more than
350,000 CPA members in business and industry, public practice,
government, education, student affiliates, and international associates.
It sets ethical standards for the profession and U.S. auditing standards
for audits of private companies, non-profit organizations, federal,
state and local governments. It develops and grades the Uniform CPA
Examination.
The AICPA maintains offices in New York, Washington, Durham, N.C.,
Ewing, N.J., and Lewisville, Texas.
Media representatives are invited to visit the AICPA Online Media Center
at www.aicpa.org/mediacenter.
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