Putting Your Stimulus Check to Work


A new COVID-19 stimulus payment is on its way. According to the IRS, more than 90 million Americans have already received theirs with additional checks en route to the remainder of eligible recipients. President Biden signed the American Rescue Plan Act into law March 11th, provisioning a third round of stimulus money which includes $1400 payments for single adults making less than $75,000, joint households making less than $150,000, and all dependents regardless of filing status.

For many, the latest round of economic stimulus is a lifeline that will allow them to pay rent, obtain necessities, and obtain child care. For lower-level wage earners, direct stimulus is a necessity; without it, they face mounting debt, eviction, and starvation. But for a large subset of middle-class Americans who were able to take advantage of remote work and social distancing measures, the stimulus represents something very different: discretionary spending above and beyond their normal income.

Given the sudden windfall, what should you do with your stimulus money?

Cover the Basics

Debate regarding additional stimulus has been going on for months. The average American has had plenty of time to figure out what to do with their money once they receive it. If you haven’t figured that part out yet, it helps to take inventory of your current financial situation before deciding. Taking care of your family’s needs is priority number one. If you’re struggling with rent or behind on critical bills like your mortgage, your stimulus money should be earmarked for that purpose. Cover the basics before spending the money on anything else. 

Deposit the money into a high-yield savings account

There is a lower risk way to invest your money by depositing it into a savings account. Please note, there is still the risk of inflation eroding purchasing power. For the risk averse, a savings account represents an appropriate investment vehicle to consistently grow your assets. While a savings account doesn’t feature the “high risk, high reward” opportunity of the stock market, your money is guaranteed to increase over time. With a savings account, your assets remain easily accessible; you don’t have to worry about a loss of liquidity.

The average APY on a normal savings account hovers somewhere in the neighborhood of 0.09%. With a high-yield account however, that number can be anywhere from 0.6% to 1%. While those may not be as high as pre-pandemic interest rates, a high-yield savings account remains the most consistent way towards incrementally increasing your worth. 

Save it for retirement

The economic stimulus package presents a unique opportunity for investors to build their retirement nest egg. Consider using your stimulus money to open a Roth IRA. Doing so allows you to triple dip on the Roth’s tax advantage. The stimulus money itself is tax-free. With the Roth IRA, it grows without being taxable, and there’s no tax when it comes to time to withdraw that money in retirement. People under 50 can contribute up to $6,000 per year.

Experts and financial analysts recommend that consumers have at least $120,000 in their retirement account by the time they reach their 40s. In order to properly fund retirement, the average consumer should put away 15% of their yearly income to account for long-term expenses. Investing your stimulus in a Roth IRA now can help you play catch up if your retirement accounts are underfunded or behind schedule.

Invest in the stock market

If you are fortunate enough to have your basic needs taken care of, the latest round of stimulus money is more like icing on the cake than a lifeline. Why not take that money and make it work for you (and your community)?

COVID-19 aside, the stock market as a whole has had a run of record-setting performance over the last few years. According to The Balance, the S&P 500 has had only one negative return year since 2009, boasting recent numbers as high as 31.49% in 2019. Even mid-pandemic, the market continued to prove its resilience.

Investing in the stock market can be a great way to make the cash infusion work for you. Talk of meme stocks aside, many key securities appear poised to jump in value as the country returns to normal this summer. Airlines, entertainment, and big box stores have the potential to increase exponentially in the coming months.

Invest Locally

Not all investments involve stashing money away; some are more altruistic. For middle class recipients who are in the position to invest their stimulus, that money is ultimately disposable income. Consider injecting it back into the economy. Using your stimulus check to make a major purchase is a great way to invest in the country’s overall prosperity provided that you purchase from local business owners. Investing in local commerce is an investment in everyone.

Getting the Most Out of Your Stimulus

The American Rescue Plan Act is designed to help struggling families take care of financial obligations resulting from the COVID-19 pandemic. Moreover, it is designed to spur the economy by raising the standard of living, circulating money, and giving citizens additional investment opportunities. Once your baseline needs are taken care of and your emergency cash reserves are properly shored up, consider making the remaining money work in your favor. 

Brian Menickella is a co-founder and managing partner of The Beacon Group of Companies, a broad-based financial services firm based in King of Prussia, PA

Securities and Advisory services offered through LPL Financial

, a registered investment advisor. Member 

The opinions voiced in this material are for general information only and are 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.

Savings accounts are FDIC insured to specific limits, whereas investing in securities is subject to market risk including loss if principal. No strategy assures success or protects against loss.

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax – free. Withdrawals of earnings 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. Limitations and restrictions may apply.

Contributions to a traditional 401(k) or IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

The S&P 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

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