What To Do With Your Tax Refund
What should you do with your tax refund?
It’s tax time again. And many of us are expecting a tax refund. If you’re getting money back, you might be wondering what to do with it.
Here are some smart ways to take advantage of that windfall.
1. Build your emergency fund.
If you don’t have an emergency fund, or if it’s taken a hit in the economic uncertainty of the past year, you can save at least a portion of your refund for emergencies. The general recommendation is to have six months of expenses saved in case of unemployment or loss of work hours, failure of a home appliance or technology tool, unexpected vehicle repairs or medical expenses, or other emergency situations. But even $1,000 can provide a cushion to help when unexpected expenses arise. Depending on the size of your refund, it can help shore up a depleted emergency fund or get you to that $1,000 level.
2. Save for retirement.
If your emergency fund is right where it needs to be, consider making an extra investment in your retirement accounts. Contribution limits change each year, but currently they are at $6,000 per year across retirement accounts for those under 50. Those over 50 can put away an extra $1,000 each year. You might even still be able to add funds for the 2020 tax year — consult your tax professional to see if this is an option for your situation.
3. Invest in education or work tools.
Education or tools to help you build a side hustle or grow in your current profession can be a great way to maximize the effects of a tax refund. Not only are you making that money work for you by increasing your earning potential, you may be able to lower your tax burden in the coming year with this investment in yourself. (That’s another question for your tax professional.)
4. Pay off debt.
If you’ve got a holiday debt hangover or have been carrying credit card debt for a while, you can buy yourself some peace of mind by paying that debt down or off with your tax refund. Not only will you save money on interest, but you can put the amount you were paying on that debt into savings so you don’t have to reach for your card every time you have an unexpected expense. (Or you can use the card to take advantage of its perks and pay it off right away with your savings.)
5. Save for college.
If you’ve got kids or grandkids, you can contribute to a 529 savings plan or other college savings fund to help cover the costs of education. Even small contributions now can make a big difference when it’s time for college.
6. Have fun.
If your savings are fully funded, your retirement contributions are maxed out, and your debt is under control, consider a trip (once travel is advisable, of course), home or landscape project, or other fun purchase.
If you need more advice about savings options or lowering your debt, visit our Accounts page or give us a call at 503-588-0211 or 877-695-8321.