Though spending the money you obtain each year from your tax refund on expensive things may be tempting, there are ways you can make this money work towards a better future.
That incredible trip, or a new gigantic TV may be the first things you think of when you receive the money during tax season. And, of course, you can choose to go ahead and buy them. But, a much smarter thing to do with your federal tax refund is to save it and invest it in your future.
Here are 3 smart money moves we suggest that you take the time to analize:
1. Invest for your retirement
Whether you plan on retiring early or not, this is a great option to invest your tax refund this year (and every year).
You can put up an account sepecially for this or if you already have your own IRA or Roth IRA, this can be used to help you max out your contribution. The main difference between Roth IRAs and most other tax-advantaged retirement plans is that instead of granting a tax reduction for contributions to the retirement plan, qualified withdrawals from the Roth IRA plan are tax-free, and growth in the account is tax-free. Putting most of your tax refund into your Roth IRA, helps you get a jump start on the new years’ contributions.
The extra few hundred or thousands can really elevate your retirement savings money and you’ll be surprised at what these retirement investments can lead to 5, 10, or 30 years down the road.
2. Start investing in a 529 Plan
If you are starting a family or have kids getting close to starting school, a 529 plan can be a great way to invest for their future (and yours).
A 529 plan is a plan that helps you save for college and offers tax and financial aid benefits. 529 plans can also be used to save and invest for K-12 tuition in addition to college costs.
There are two types of 529 plans: college savings plans and prepaid tuition plans. Looking into these alternatives as an option for your refund money investment, is a really good idea if you have children
3. Invest or save your tax refund for emergencies
One last way this money can help you have a better future, is to put it towards an emergency fund. You may put aside this money at home or you can open a special account for this purpose and put your money to work. The idea is that the fund helps out when unexpected expenses appear. High-yield saving accounts pay more than standard saving accounts and can be a great option.
Many Americans have no more than $1000 saved, and this can be a real problem if there is an emergency you can’t pay for. So, instead of thinking of how you can spend your refund, think of how it can help your savings.