A tax return gives you an opportunity to do something really good with your money, which you have to remember is not gifted to you. Any money returned is money you have worked hard to earn, so make your tax refund work for you. While there is no right way to spend your money, there are definitely a number of notable options. Here are 5 good uses for your income tax return.
5 Good Uses for Your Tax Return:
Pay off debt
Instead of using your refund as a down payment to acquire more debt, consider paying off some of your existing debt. You may decide 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.
Start or grow your emergency savings
Unexpected things happen, so we have to be prepared for the car repairs, medical bills, or changes in employment and hours. At the minimum, one should have 3-6 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 is a great peace of mind.
Start a savings account and add your tax return to start saving for a down payment on a home. Saving for a down payment is no easy task, but fear not – it can be done. The recommended down payment amount is 20% of the total cost of the home; this will make your loan approval much easier, give you a better interest rate, and lower your monthly payments.
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 the majority 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.
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 are for qualified medical expenses.
Education Savings Account
The cost of college tuition is on the rise, and that trend does not seem to be changing anytime soon. If you know you will be helping a minor finance their education in the future, 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. Ask about opening one at a branch near you.
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