This years tax deadline is behind us. If you received a refund, what’s your plan?
Some taxpayers choose to spend the entire check on clothing, shoes, and their appearance. They never look into investing their money for their own personal future. In a sense, you may be temporarily happy about your purchases or your new hairstyle, but in the future, you might regret not investing some of the money for your retirement.
There are many ways to put your tax refund to work, such as:
• Invest in a healthcare savings account
• Paying off school loans
• Emergency savings account
• Start an IRA
These options can help you with lowering your debt and being prepared for those unexpected situations. If you have a high deductible health care plan at work, you can open a healthcare savings account or HSA. These funds are used in case you have a medical emergency that needs to be taken care of right away, such as a broken bone, a fractured ankle, or a broken hand. If your health insurance doesn't cover the cost of the procedure, you can use your healthcare savings account. The greatest advantage of this type of account is that you won't be taxed when using it for healthcare.
If you reach retirement age, you can use the money for glasses or hearing aids and even medical premiums. You can use it towards your out-of-pocket expenses as well.
Let’s take a look with those that have a 401k plan.
While contributions to a 401k plan must come from your paycheck, you can divide your refund by the number of remaining paychecks for the year and thus use it to contribute towards your 401k. According to the Internal Revenue Service, the average tax refund is over $3000. If there are 16 more paychecks this year, you could increase your contribution by an extra $187.50 per paycheck to use your refund by the end of the year.
Additionally, many plans have a matching contribution by employers which is a great incentive for you to start investing if you’re not already doing so.
Did you know?
If you’re self-employed without a 401k, you can open your own 401k plan and lower your taxes by “putting away” up to $56,000 a year. Unlike a regular 401k which can be costly endeavor, a solo or individual 401k can be set up for free and operated with little ongoing administrative paperwork. If you are in a position to open an Individual 401k, you don't have to have a certain amount to open it. An Individual 401k is great for single people who have no children. In case there is an emergency that takes place in their life, they can have the option of using an Individual 401k.
The best way to prepare for a fulfilling retirement is by preparing for it.
Whether you decide to use your refund for investing towards the retirement or paying down debt, you have made a step towards having a better future. That's truly a lot to be proud of.
We are here to help you plan for your retirement years, contact us today to see what plan we can create for you.
https://money.usnews.com/money/retirement/iras/articles/how-to-use-your-tax-refund-toward-retirement, US News and World Report
This material is for general information and is not intended to provide specific tax advice or recommendations for any individual.