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Tax Filing Extension, Stimulus Checks, Contributions

Tax Filing Extension, Stimulus Checks, Contributions

April 16, 2021
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Welcome to the Weekly SUMmary - 04/16/2021

Today is typically the day after your tax filing is due. The IRS has extended this deadline to May 17. See here for more details: https://www.irs.gov/newsroom/irs-extends-additional-tax-deadlines-to-may-17. Hopefully you are receiving my updates via social media related to these important topics. If not, follow me here: https://www.facebook.com/nathancsumner

Many Americans are receiving their stimulus checks from the American Rescue Plan Act (ARP). There has been a significant increase in savings rates amongst Americans since the shutdown in early 2020. For options on how to get the best bang for your buck, see below:

  1. Savings - a savings account is a great option for these funds as they are liquid and typically insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).
  2. IRA Contributions - one could take these funds that are viewed as after tax and contribute to an IRA (barring income related restrictions) and potentially get a tax deduction or even refund for said contribution.
  3. Roth Contributions - since these funds are considered after tax, one could contribute to a Roth. One of the benefits of a Roth is that the funds could potentially grow tax free but also allow flexibility to withdraw contributions without tax or penalty as needed (although this is not recommended).
  4. Increase Employer Plan Contributions - If one can replace some income with the stimulus checks, they may be able to increase employer plan contributions and potentially receive a matching contribution from the employer making the impact of said contribution that much greater.

As I know that is quite a bit to consider already, I will address contribution limits in my next post.

Until then do SUMthing smart with your money.

This post is meant for educational purposes, and should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. . 

If you withdraw money from a traditional IRA before age 59½, your deductible contributions and earnings will be taxed as ordinary income. You may also be subject to a 10% penalty on early withdrawals. 

Roth IRA contributions are subject to income limitations. You may take nontaxable withdrawals before age 59½ if the Roth IRA is held for at least five years and you meet certain distribution guidelines. Otherwise, an early withdrawal before age 59 ½ may be subject to taxes and a 10 percent federal tax penalty.

Please discuss with your tax advisor prior to making financial decisions.

(04/21)


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