Expecting a tax refund? We’re sharing 5 ideas on how you can make your money work for you.
If you’re receiving a tax refund, it’s important to remember this money isn’t gifted. Any money returned is money you have worked hard to earn – so put your tax refund to work for you. While there’s no one right way to spend your money, there are definitely a number of notable options.
5 Good Uses For Your Tax Return
#1 Pay Off Debt
Instead of using your refund as a down payment to acquire more debt, consider paying off some of your existing debt. One option would be to pay a small balance and rid yourself of a monthly payment or focus on paying down debt with the highest interest rate to cut costs over time.
#2 Start/Grow Your Savings
Unexpected things happen, so it’s best to prepare yourself for any car repairs, medical bills, or changes in employment. At the minimum, one should have three to six months’ of living expenses in savings. If you already have this, think about increasing this to a year’s worth of expenses. Knowing that you have something to fall back on can give you peace of mind.
You can also open a share savings account or share certificate and deposit your tax refund to kick-start saving for a financial goal. This can be anything from going on vacation to saving for a down payment on a house. The more you save, the less you need to borrow and pay interest on.
#3 Contribute To An IRA
Living a comfortable life in retirement may highly depend on the steps you’re taking today. Depending on your age, you may have to finance some to most of your retirement. Why not contribute a little more if you can? As a bonus, you may see some tax benefits. Speak to a tax professional to learn about your options and contribution limits. Don’t have an IRA? Learn more about opening an Individual Retirement Account and begin planning for tomorrow today.
#4 Contribute To An HSA
If you have a high deductible health plan, contributing to a Health Savings Account is another great option. This type of savings account allows you to save for health-related expenses. Unlike similar products, any money not spent remains in your account for future expense allowing you to use the funds at any time. Considerable benefits include the fact that non-payroll contributions are tax-deductible and interest earned is tax-free. Additionally, withdrawals are tax-free so long as they’re used for qualified medical expenses.
#5 Education Savings Account
The cost of college tuition is on the rise, and that trend doesn’t seem to be changing anytime soon. If you know you’ll be helping a minor finance their education, begin saving as early as possible. There are multiple types of accounts specifically designed for saving for college. A noteworthy option is the Coverdell Education Savings Account. With this type of savings account withdrawals, including earnings, are tax-free if used for tuition, books, and other qualified higher education expenses.
While it’s easy to receive your tax refund and start spending money, it would be wise to have a plan in place to keep your money from disappearing as quickly as it appeared.