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Regulation and Compliance > Federal Regulation > IRS

IRS Allows IRA Stimulus Payment Withdrawals

By Staff Writer

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The Internal Revenue Service is trying to remove a regulatory hurdle that could keep some U.S. workers from spending the economic stimulus payments they are about to get from the federal government.

Some taxpayers have asked the IRS to put their entire tax refunds in their individual retirement accounts or other tax-advantaged accounts.

Those taxpayers can withdraw the stimulus payments from the accounts without paying any extra federal taxes or penalties, IRS officials say in IRS Announcement 2008-44.

The tax-free withdrawal period for most types of tax-advantaged accounts is April 15, 2009.

The relief is available to traditional and Roth individual retirement accounts, health savings accounts, Archer medical savings accounts, Coverdell education savings accounts and 529 college savings plans.

“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,” IRS officials say in a statement.

Some financial institutions may have a hard time distinguishing between the stimulus payments and other contributions, officials note.

“Therefore the financial institution receiving the direct deposit of the economic stimulus payment and making the distribution should report the deposit and distribution in the usual manner,” officials say.

Taxpayers who withdraw stimulus payments will get instructions for reporting the withdrawals when they pay their income taxes in 2009, officials say.

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