Relief Announced For Stimulus Payments Withdrawn From IRAs And Tax-Favored Accounts

by Mike Godfrey, for LawAndTax-News.com, Washington

02 May 2008

Economic stimulus payments directly deposited into IRAs and other tax-favored accounts may be withdrawn tax-free and penalty-free, the US Internal Revenue Service (IRS) announced on Wednesday.

This relief is designed to help taxpayers who may have been unaware that by choosing direct deposit for their entire regular tax refund, they were also choosing to have their stimulus payment directly deposited as well, the IRS explained.

If a taxpayer elected a split refund, however, their stimulus payment will be paid by a paper check.

This relief is available for amounts withdrawn from these tax-favored accounts that are less than or equal to a taxpayer’s directly deposited stimulus payment.

To qualify for the relief, funds must be taken out by 15th April, 2009, in most cases.

Without this relief, taxes, penalties and other special rules would apply to amounts removed from these accounts.

Regular refunds are not eligible for this relief, the tax authority clarified.

Eligible tax-favored accounts include traditional and Roth IRAs, health savings accounts (HSAs), Archer MSAs, Coverdell education savings accounts (ESAs) and qualified tuition programs, also known as QTPs or 529 plans.

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