18 May Can I put my stimulus payment in a Roth IRA?

Q. Can you use your stimulus as income and put it into a Roth IRA if you are retired?
— Retired

A. We’re glad that your personal finances are healthy enough that you don’t need to spend your stimulus payment.

Roth IRA contributions are governed by rules, so we’re glad you asked.

To make a contribution to any kind of IRA, you must have received taxable compensation such as wages, commissions or self-employment income, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.

“An economic impact payment — the stimulus rebate — received because of the CARES Act is not taxable income, so receipt of this payment will not create the ability to make an IRA contribution,” Becourtney said.

There is another advantage to IRAs right now, though, as many investments have taken a hit.

If a taxpayer has existing traditional IRAs, the taxpayer can choose to convert all or a portion of those IRAs to a Roth IRA, Becourtney said.

“To the extent an IRA distribution would be taxable, the conversion to a Roth IRA would be taxable based on the fair market value of the converted IRA on the date of conversion,” he said.

Additional information pertaining to making contributions to IRAs can be found in IRS Publication 590-A.

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This story was originally published on May 18, 2020.

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