What Will You do With Your Tax Refund?
It’s that time of year again where the television is filled with commercials on what you can spend your tax refund on. Granted, with many folks still in rebuild after the weather events of 2020/2021, new furniture or a vacation sounds lovely.
But is that really the wisest use of your hard-earned dollars?
Let’s look at a few ideas….
Purchase Life Insurance on your child(ren) or grandchild(ren). As we mentioned in our post, What Every Parent & Grandparent Should Know, there are multiple benefits to purchasing a policy on a juvenile and setting it up to where it’s paid annually with your tax return makes it easy and convenient for the buyer.
Start or contribute to your IRA or 401K. In today’s economy keeping large sums of money in your savings account may not be an easy task. Reason being is that an account at a local financial institution is so easy to get to and withdraw from! Adding your tax refund to your IRA or 401K (when that option is available) ensures those funds are invested for your future.
Start a College Fund for your child(ren) or grandchild(ren). A 529 Plan can help you avoid tuition and other higher education fees in the future. Some offer options to use the money for K-12 fees, apprenticeship costs or student loan repayments. The owner maintains control of the account and taxes (when applicable) are deferred until the time of withdrawal.
Purchase an annuity. An annuity is an investment product offered by an insurance company that, in some cases, carries a death benefit option, and is designed to protect in the instance one outlives his or her pension, retirement benefits and/or savings. For more information read our previous posts Basic Understanding of Annuities and Tax-Free Inheritance.
Invest it. Bank Rate lists 11 of the BEST Investments of 2022. Some are safe, others risky and some riskier still. I’m not one to risk too much of my money but commodities like, High-Yield Savings, Certificates of Deposit, and different types of Bonds, will allow you to put that tax refund to work for you instead of spending it on something easily or quickly consumed.
Pay off Debt. Research indicates that the average American household has over $6000 in credit card debt. This does not include home, auto or personal loans. You may not be able to pay off everything with your refund but putting it all toward your highest balance, highest interest rate, OR cancelling out two or three lower credit card or loan balances will go a long way in helping you get your debt under control and better able to plan for your future. Think about this too…. Putting a large chunk of money toward the principal balance of your home loan will help you pay that off sooner and save you tons of interest. You can then invest the amount of your monthly mortgage for your retirement.
Set up a Budget. You work and scrimp to make ends meet but no matter how hard you try, you just can’t get that budgeting thing down. Figure how many months you can stretch that refund to pad your budget until you are comfortable with and fully committed to adhering to one on a continuous basis.
Shop your auto, home or recreation vehicle insurance and pay it up for the year (if possible). Not all auto or recreational vehicle policies offer annualized premiums, but all homeowner insurances do. Paying in full can save you monthly or quarterly fees as well as the stress of remembering or having to scrounge up the funds to cover these costs.
These are a few ideas on wise ways to spend your Income Tax Refund. For more great ideas on money management check out our staff writer, Pamela S Thibodeaux’s Finance Articles.
Until next time take care and remember what Ben Franklin said …. A penny saved is a penny earned.
Tommy Curtis and Staff
Disclaimer: This material has been provided for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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