Lifepoint Financial Design – LifePoint Financial Services – Mike Metzger Financial Planning

It’s official, if your taxable income was below $150,000 as a household or $75,000 as an individual in 2019 or 2020, then your stimulus money is on its way. Taxable income is the key component. You could very well have made $250,000, but if you are creative with your tax strategies, you could reduce your taxable income down below the phaseout. As a real estate professional, for instance, there are many favorable strategies to reduce your income dramatically for tax purposes. Speak with your Financial Planner or Tax Advisor if you need help in finding these creative solutions for your situation.

For those that truly need the money to keep up with bills, by all means, use that money for its intended purpose. If you are self-employed and have no other means of paying for estimated taxes in April, then Uncle Same just gave you the money to do so.

Many of you who have remained employed through the pandemic, don’t necessarily need that money. But you certainly don’t want to donate it back to the IRS. I’m going to help you with 3 strategies to put your stimulus money on steroids and make the most of Uncle Sam’s gift!

1. Health Savings Account (HSA)

The Health Savings Account to this day is still the only real account that offers what we call “triple tax-free” status. What this means is that if the IRS gives you $1400 in stimulus money as an individual or $2800 for a married couple or the maximum amount given for all dependents; then you can receive all of that money as a dollar-for-dollar reduction off of your total income. In addition, you can invest those funds inside of your HSA account in traditional stocks and bonds with complete tax-deferral, and then withdrawn for a variety of qualified medical expenses tax-free.

This is money on steroids! You can take the stimulus money and never pay taxes on it ever! If you have excess in your HSA beyond what you need, then it has years of potential tax-free growth well beyond what they gave you originally.

2. Roth IRA

A Roth IRA is a brilliant place to make the most of your stimulus funds. A Roth is what we call “double tax-free”. If you qualified for stimulus funds, you likely qualify to open or contribute to a Roth IRA.

You would have to pay taxes on that stimulus money, as you normally would, and then those stimulus funds are set inside of this retirement account to grow tax-free for years to come. It’s an easy way to turn a dollar into many over the course of 10, 20, or 30 years. All of the potential growth that occurs within the account can then be withdrawn in retirement with no capital gains tax or ordinary income taxes.

3. Indexed Universal Life Policy

For those that have years until retirement, paying a monthly or annual premium into an indexed universal life policy can provide some massive benefits. This is for those individuals who have already maxed out other retirement plans. The indexed universal life policy is, also, what is called “double tax-free”.

Although those stimulus funds would be taxed when received as income, the premiums going into the policy can grow tax-free as its invested into an index, like the S&P 500. Over a period of 20 to 30 years, you could be talking about some serious leverage of your stimulus funds!

When you are ready to pull money out at retirement, you can take loans against the growth in the policy tax-free without ever paying a dime back if its structured properly. It is critical to speak with a financial advisor regarding this strategy. The proper set up and specific policy is important to understand so that the funds don’t become taxable.

These are three financial strategies to put your stimulus on steroids and to get the most leverage out of the money the IRS has given you. Don’t make the mistake of paying it right back to Uncle Sam in the form of taxes. And you want to be wise to not spend it on leisure items that you’ll won’t even remember in 30 days.

If you use any of these 3 financial strategies, your future-self will thank you! Trust me, the IRS is not in the business of gift giving, so make the most of it.

For more financial strategies and tips, check out The Lifepoint Blog


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Asset allocation does not ensure a profit or protect against a loss.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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