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What You Should Do With Your Third Stimulus Check

The first wave of stimulus payments were sent out, and others will be sent in the upcoming weeks. Unfortunately, there is no known timeline for when all payments will be distributed. What we do know is the $1.9 trillion stimulus package authorized the third round of checks, and if you qualify, you could receive $1,400 or more.

As the third stimulus check begins hitting bank accounts, many have plans for where to spend the extra cash. However not everyone will qualify.  

Who Qualifies for the Third Stimulus Check?

The third stimulus payment is more than the two prior; however, it comes with a different set of income eligibility.

You qualify if your Adjusted Gross Income (AGI) is:

  • Below $75,000
  • Making $150,000 single
  • Making $112,500 married or if you are head-of-household

You will qualify for the full amount. Each eligible person will receive $1,400. That means married couples will receive $2,800 and you will receive an additional $1,400 per dependent.

People above these income levels will have their check gradually reduced to zero. You will not receive a stimulus payment if your income is above $80,000 (single), $160,000 (joint filing), or $120,000 (head of household).

Will I Get the Third Stimulus If I Didn’t File 2020 Taxes?

Since the stimulus payments are coming out in the middle of tax season, your stimulus payment might be complicated. The IRS will determine your eligibility based on your adjusted gross income on your most recent tax return, which can be in 2019 or 2020.

If you have filed in 2020, they will use your AGI to determine your payment. If you have not filed your 2020 taxes, they will use your 2019 AGI. This can have several implications.

If you earned more in 2019 than you did in 2020, but you have not filed for 2020, you might not receive a stimulus payment. However, missing stimulus money can be claimed on your 2020 return if you meet the income requirements.  

Will I Get the Third Stimulus Check If I Didn’t Work?

If you did not work, you likely did not file taxes. But in order to receive the third stimulus, you will need to file a 2020 1040 or 1040-SR for free using the IRS Free File program.

Will I Get the Third Stimulus Check If I Owe Debt?

The first stimulus payments were not shielded from garnishments. The second payments were protected. The third round of stimulus checks were distributed through a process known as budget reconciliation, meaning that they too can be vulnerable to garnishment from debt collectors.

However, your stimulus payment will not be garnished to pay off any government debts like back taxes. But, the funds can be garnished by debt collectors to pay off credit card debt, medical debt, and student loan debt. Basically, the money you are expecting or have already received, is vulnerable to garnishment from private debt collectors.

Financially Smart Decisions to Make With Your Third Stimulus Check

What you do with your stimulus check is a personal decision. Every person’s financial status is different from their friends, neighbors, coworkers, and relatives. Making smart decisions on how and went to utilize your stimulus can help get you out of debt, create an emergency fund, or bulk up your retirement savings.

The first thing you should do is assess your current financial status to determine the best course of action for your unique needs. 

Pay Off Your Monthly Bills

After a detailed look at your current financial status, you should have a clear picture if you have any outstanding monthly bills. Are you behind on the electricity, water, or mortgage/rent? If you are behind on more than one monthly bill, assess what is most urgent. This is the perfect place to utilize your stimulus money and get you caught up on your monthly expenses. 

Put It Toward Your Loans 

If you are current with all your monthly expenses, but still have outstanding debts, like car payments, credit cards, or a mortgage, consider using the stimulus money to go toward your loans. By making an extra payment, you extra payment will go toward your principal, reducing the interest you owe. 

Strengthen Your Safety Net With an Emergency Fund

As we have seen over the course of the last year, things can change rapidly. Adding your stimulus payment to your emergency fund can provide you with a cushion in case you get in a bind. 

What Is an Emergency Fund?

An emergency fund is an account at your bank or credit union that you set up to use only for emergencies. You put aside money on a regular basis to pay for unexpected, large expenses. This creates a financial buffer that can help keep your head above water in case of emergencies. Some of the most common reasons people use emergency funds is for unforeseen home repairs, major car problems, medical expenses, and even unemployment. 

How To Open an Emergency Fund

If you do not have an emergency fund yet, the first step is to reach out to your bank and find out what accounts are available that provide you with easy access to your money, but also provide high interest rates. There are many savings accounts that can be set up to hold your money in the wings, while you use your personal checking account on a daily basis.

Be sure that whatever type of account you choose, that you are able to access the money without penalty. After all, there are other types of investment accounts that can help you garner higher interest. An emergency fund should be easily accessible for when emergencies strike. 

Contribute Some to Retirement

If your bills are current, your loans are paid, and you already have established an emergency fund, you should consider putting the stimulus money toward your retirement. If you are not currently saving enough in your retirement accounts to reach your long-term goals, this extra boost can help you earn compound interest over the next few decades! 

Retirement Plans to Look Into

If you do not currently have a retirement plan, it is something you should highly consider. There are 25% of adults in the U.S. that do not have anything saved for retirement. If you fall into this category, do not worry. It is never too late to start.

First, check with your work to see if they offer any type of retirement savings accounts. The most common is a 401(k), while some offer 403(b) accounts. Either way, if they offer you retirement vehicles that offer a company match, you should utilize as much as you can to not leave money on the table.

If your company does not offer any retirement savings, the next step would be to look at Traditional IRA and/or Roth IRA accounts. Both will help you save for retirement while helping your contributions grow. 

Start or Add to a College Saving Fund

If you have children, it is also a great idea to invest in their future by starting or adding to their college saving fund. When you contribute money to their saving funds, you are helping them start adulthood on the right foot – with little or no college debt!

What Is a College Saving Fund?

A 529 college savings plan is a type of savings’ account. Like a Roth IRA, it is a tax-advantaged investment. This means that you invest your taxed income into the account, and its growth and withdrawals are tax-free.

There are different types of 529 plans available, including ones that have age-adjusting portfolio options. This means when your child is young, your investment is placed in higher growth investments, like stocks. As they get older and closer to graduation, the plan converts to a conservative portfolio, minimizing the risk as it comes closer to time to pay for their education.

Before you go out and invest in a college savings fund, do your research. Each account has different fees and portfolio options. Make sure it is the right selection for you, your family, and the age of your child. 

Invest It

Last, but certainly not least, you can use your stimulus money to increase your investment portfolio. There are a plethora of investment vehicles that you can use this stimulus payment as capital. Stocks, bonds, retirement, and the like can all help you reach your long-term goals with this added bonus. 

Start Thinking of Your Financial Plan

If you are unsure of the best way to utilize your stimulus funds, consider reaching out to your financial advisors. They have a detailed understanding of your personal financial situation and goals. They can help guide you on the best way to utilize your stimulus money.

If you do not currently have a financial advisor, consider working with one to create a financial plan. Not only will they help you address your current situation, but they will also help you understand how investing your resources can help you reach your long-term dreams.

Spend Your Stimulus Check Wisely

If you received the third stimulus check, it might be tempting to utilize it for frivolous things. After all, we have all spent the last year in this new world of social distancing and running to the mall might seem like a stress-reliever. But, the excitement will only last momentarily.

Instead, invest in your future. You can use this money to get caught up on monthly expenses, pay off debt, or invest in your/your family’s future. In the long run, you will feel better about investing it wisely.