The headline might feel like it’s 2020 or 2021 all over again, but it’s true: The IRS is distributing billions of dollars in stimulus aid checks to taxpayers by the end of January 2025. Before you get too excited, understand that while the IRS will be distributing roughly $2.4 billion in payments, they’re only going to those who were already entitled to them and failed to claim them.
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Here’s what you need to know.
Understand Who Is Receiving a Payment and Why
Specifically, the January 2025 payments are going to taxpayers who did not claim a Recovery Rebate Credit on their 2021 tax returns. That rebate credit in itself was intended as a catch-all for taxpayers who did not receive one or more pandemic stimulus payments, officially known as Economic Impact Payments (EIP).
Most Americans claimed all of their eligible stimulus payments during the actual COVID-19 pandemic. So, if you’re like most Americans, you shouldn’t get your hopes up that another payment is coming. But for up to 1 million taxpayers, a check will soon be on the way.
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Evaluate Your Options
If you are one of the lucky ones to get a much-delayed stimulus check, you have a great opportunity to improve your financial situation. Here are some smart options you can consider if you want to use the stimulus check productively.
Pay Down Debt
If you have any consumer debt — particularly of the credit card variety — using your stimulus money to pay it down can be a great move. With most credit card companies charging over 20% in interest, debt can rapidly spiral out of control, and paying it off should be a top priority.
With an unexpected $1,400 in your pocket, you can hopefully make a major dent in your outstanding debt.
Invest In Your Retirement Account
You might be surprised how much $1,400 invested in a retirement account can grow over the course of an investing career.
Imagine that you’re 30 years old when you receive that stimulus payment, and you sock it away for 35 years in a retirement account earning 8% per year. By the time you are 65, that “free $1,400” would have grown to $22,809. That’s more than 16 times what you originally started with.
Add to Your HSA, If Eligible
If you have a high-deductible health plan, you may be eligible to contribute to a health savings account. If you put your stimulus check in this account, not only will you build up your healthcare savings fund, you’ll get a tax deduction on your contribution.
Additionally, your withdrawals will be tax-free when used for qualifying medical expenses. This can be one of the very best ways to use your stimulus payment, depending on your specific financial situation.
Boost Your Emergency Fund
The foundation of any financial plan is a solid emergency fund. Most experts recommend keeping at least three to six months’ worth of expenses in an emergency fund, so $1,400 probably won’t cut it for most people. But it’s a great way to shore up a fund if yours is currently lacking.
Avoid Blowing It
Sure, it feels like receiving a stimulus check in 2025 is “free money.” After all, it’s likely that most people receiving it are not even expecting it. But the path to lifelong wealth does not come from blowing “free money” on discretionary items like clothes and cars and trips.
Rather, smart investors see “free money” as an easy way to boost their long-term investment accounts. This is particularly true if you find it hard to save money on your own. If you’re struggling to set aside $200 per month, for example, receiving a $1,400 stimulus check should be seen as a windfall in terms of your savings plan, equivalent to seven full months of savings in one fell swoop.
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This article originally appeared on GOBankingRates.com: 5 Moves To Make If You Are Getting Some of the $2.4 Billion in IRS Stimulus Payments
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