It’s officially tax season, and income tax returns are due on April 18, 2022. If you are one of the millions of Americans who are expecting a refund from the Internal Revenue Service this year, here is a list of the best ways to use your income tax refund to improve your finances.
1. Build or Start an Emergency Savings Account
Everyone should have an emergency savings account they can tap into in case of an unexpected job loss, medical emergency, or costly home repair. Otherwise, you may end up having to turn to high-interest loans or credit cards in your time of need, which will only put you further from your financial goals. Starting or building up your emergency fund will give you peace of mind knowing you are prepared for life’s unexpected events.
The IRS will allow you to split your refund between three bank accounts through direct deposit. Sending as much of your refund as you can directly to savings will help you avoid the temptation to spend it.
2. Pay Off Debt
If you are carrying credit card debt or another type of loan with a high-interest rate, use your refund to pay off as much debt as you can. Once you erase your high interest debt, you can start using the extra money to build up your savings or pay off other debts.
3. Invest In Your Retirement
Most taxpayers don’t have enough money in their retirement accounts to comfortably support themselves once they stop working. Using your refund to purchase a Roth or traditional IRA is a smart way to boost your retirement savings.
4. Invest In a CD
A CD, or certificate of deposit is a reliable and secure way to invest your money, with guaranteed returns. Interest rates for CDs are higher than rates on traditional savings.
5. Save for College
The price of higher education in this country is steadily increasing, and many young people are graduating from college with seemingly insurmountable debt. To help take some of that burden off of your children or grandchildren, start a 529 plan.
6. Renovate Your Home
Homeowners who live in older homes could save money in the long run by using their refunds to replace old, drafty windows or inefficient appliances. Investing wisely in the right home improvement projects could also increase the value of your home, which will pay off down the road, if you decide to sell.
7. Pay Down Your Mortgage
Making extra payments on your mortgage can save you a lot of money in interest over the life of your loan. Even if you can only make one or two extra payments a year, the savings will be significant.
Making your finances a priority during tax time can really pay off when you use your state and federal tax refunds wisely. TDECU Wealth Advisors can help you create a plan to reach your financial goals during tax season, and all year long.