Saving Future Stimulus Checks for Your Kids? 3 Ways To Ensure Correct Usage

When you get a stimulus check from the government, it is a lifeline. During the COVID-19 pandemic, many Americans received several stimulus checks to aid in getting basic necessities, such as groceries, housing and transportation. Some people might still be waiting on stimulus checks to come through at a yet to be determined date, with big plans for saving them so that they can be used on their children.

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If that sounds like you, it’s important to take note that there are a few ways to solidify the funds received from any stimulus checks in the future. After all, you want to make sure the money is used correctly and goes to some of the people you love most.

“A family that suddenly receives a cash windfall, such as a stimulus check, may want to carefully consider how to allocate those funds,” advised Lauren Genuardi, the COO and managing partner of Expressive Wealth

For anyone saving any future stimulus checks for their kids, here are three ways to ensure they are used correctly.

3. Take Care of Any Taxes

Some money from stimulus checks is untaxed, but a lot of it is, often viewed as income. Just because you are getting the money without necessarily doing anything for it does not always mean you will not have to pay taxes on the earnings.

Should you be saving the funds for your kids, make sure you are also properly assessing and handling the tax aspect, as well, so you do not have to burden them.

“The federal government and many states provide tax credits and stimulus money when claiming children on your tax return,” noted Susan Einberger, certified financial planner (CFP®), enrolled agent (EA), MBA, a certified member of the Alliance of Comprehensive Planners (ACP), and owner of Enjoy the Ride: Financial + Life Planning

“While the cost of raising children is significant, I hope no one has children to receive tax credits or relies on the tax credits in their annual cash flow.

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2. Turn Your Stimulus into a Gift

You might be giving your children many presents throughout their lifetime, but turning your future stimulus checks into a gift can be a way to make sure they get the money you want them to have.

“Because tax law is written in pencil and Congress is constantly making changes, it is prudent to view the child tax credits and stimulus payments as an unexpected gift,” Einberger explained. “Gift income is a great way to shore up savings and the best practice is to save at least 20%.”

1. Utilize Compounding Interest to Your Advantage

Once you have received the money from your stimulus checks, you’ll want to make sure that they are deposited into an account where the money does not just sit there, but actually grows over time. For that, you’ll need to set up a savings account that compounds the interest, which your kids will thank you for doing even more than simply giving them a stimulus check.

Genuardi noted that some families may want to “opt to deposit the money into a high-yield savings account to strengthen their emergency savings, while others might choose to contribute to their children’s 529 college savings plans.”

“The benefits compound if the savings can be directed to a tax advantage account for your child, like a 529 Plan for college or a Roth IRA for retirement,” Einberger described, highlighting that this only works if eligibility requirements are met.

“What a savvy way to save for your children-use free government money as a source to contribute to tax advantaged accounts.”

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This article originally appeared on GOBankingRates.com: Saving Future Stimulus Checks for Your Kids? 3 Ways To Ensure Correct Usage

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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