7 Ways to Get Even More Money Out of Your Tax Refund
This article is sponsored by TaxAct.
You probably know what it feels like to get a tax refund: it’s like you suddenly have this big chunk of extra money, right? And you can do anything with it — it’s not like your paycheck, so you don’t have to spend it on groceries or utility bills. You could, of course, put your tax refund towards groceries and bills, and many people do. You could also use it to book a vacation, buy a new car, anything that you’ve been putting off.
But if you’re looking for ways to use that big chunk of money to earn even more money, here are seven tried-and-tested methods of getting a return on your tax return.
Pay off debt.
Although using your tax refund to pay off debt won’t feel like “getting more money,” you’ll see those savings come back to you in fewer debt payments and fewer interest charges. If you can pay off an entire debt with your tax return, that’s even better — you can put the money you were paying towards that debt into savings, or use it to pay down another debt.
Invest for retirement.
By investing your tax refund into your IRA or Roth IRA, you can build your retirement fund, let the market grow your contributions over time, and — if you’re investing in a traditional IRA — get a tax deduction for next year. If you still have decades until retirement, you also get the benefits of long-term compound interest. It’s a win-win!
Invest for yourself.
Have an individual brokerage account? Want to start one? Building a personal investment portfolio (that’s separate from your retirement investing) can help you earn a greater return on your money than you’d ever get from a savings account.
Yes, a bear market could cause your portfolio to temporarily lose some of its value, so be judicious about your investments. Don’t invest money you might need to spend in the near future, and don’t invest your emergency fund. A lot of experts recommend investing in low-cost index funds and diversifying your investment between domestic stocks, international stocks, and bonds, so do some research before you get started. But if you’re ready to buy and hold, put that tax return in a brokerage account — that’s what I did with my return this year!
Invest in yourself.
Whether you’re learning a new skill or launching a new side hustle, investing your tax refund in yourself can help you earn more money in the long run. If you’re using your tax refund to support (or grow) your small business, you’ll be racking up tax-deductible expenses — which will save you even more money next year!
Stash it in a money market account.
If investing your tax refund in the stock market feels too risky, try investing in a money market account instead. Money market accounts offer higher returns than savings accounts, they’re generally FDIC insured, and you can probably get one through your current bank. (Don’t sign up for a money market mutual fund by mistake — that’s a different type of investment that comes with slightly more risk and no FDIC insurance.)
Max out your HSA.
If you’re eligible for a health savings account, you might want to put your tax refund into your HSA. Not only will your contribution be tax-deductible, but you can also invest your contribution to allow it to grow over time — and any money that you don’t withdraw for qualified medical expenses will become part of your retirement fund!
Annual HSA contribution limits are relatively low (in 2018, they cap at $3,450 for individuals and $6,850 for families) so you might be able to max out your HSA with your tax refund — and if you were already making monthly HSA contributions, you can now use that money to pay down debt, invest in your IRA, etc. etc. etc.
Put it in savings.
Savings accounts aren’t the best ways to maximize your money, but they have the advantage of being stable and easy to access. You probably already have a savings account set up, so drop that tax refund in and let it earn some interest. If you wanted, you could create a special savings account labeled “vacation,” “emergency fund,” or “holidays” and assign your refund to a specific savings goal.
If you file your tax return with TaxAct, you can also use their BluPrint™ Financial Report to learn how to maximize your tax refund for next year — and BluPrint™ also provides advice on refinancing student loans, paying down debt, and finding high-interest savings options.
What are you doing with your tax refund this year? If you’re trying to turn it into even more money, what option did you choose and how much do you think your refund can earn?
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