Weigh All Factors For Bank Account Sign-Up Bonuses

Published Wednesday, February 1, 2017 at: 7:00 AM EST

Have you seen the ads promising a cash reward for opening a new bank account? You may be offered a bonus of $100 or more just for signing up. But be aware that strings are attached.

For starters, promotional giveaways, awards, and prizes are subject to federal and possibly state and local income tax. This applies to everything from bank deposit offers to lottery winnings to cash prizes that accompany Oscar and Grammy awards. (Recent legislation exempts Olympic medal winners from tax.) You'll receive a Form 1099-MISC and must report the income on your tax return.

In other words, if you get $100 from a bank and you're in the 25% tax bracket, you'll owe Uncle Sam $25 on your sign-up bonus.

Consider these other potential drawbacks:

  • You may be charged fees relating to the account. For example, if your balance dips below a minimum amount you might be assessed a monthly fee that eventually could wipe out your one-time bonus.
  • Some banks require direct deposit enrollment before you receive the bonus. If you don't comply within a specified time, you might not receive the bonus at all.
  • The bonus may be rescinded if the account isn't kept open for a specified period of time.

Bottom line: Sign up for an offer only if it otherwise makes sense for you.

This article was written by a professional financial journalist for Preferred NY Financial Group,LLC and is not intended as legal or investment advice.

An individual retirement account (IRA) allows individuals to direct pretax incom, up to specific annual limits, toward retirements that can grow tax-deferred (no capital gains or dividend income is taxed). Individual taxpayers are allowed to contribute 100% of compensation up to a specified maximum dollar amount to their Tranditional IRA. Contributions to the Tranditional IRA may be tax-deductible depending on the taxpayer's income, tax-filling status and other factors. Taxed must be paid upon withdrawal of any deducted contributions plus earnings and on the earnings from your non-deducted contributions. Prior to age 59%, distributions may be taken for certain reasons without incurring a 10 percent penalty on earnings. None of the information in this document should be considered tax or legal advice. Please consult with your legal or tax advisor for more information concerning your individual situation.

Contributions to a Roth IRA are not tax deductible and these is no mandatory distribution age. All earnings and principal are tax free if rules and regulations are followed. Eligibility for a Roth account depends on income. Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions).

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