Tax season is nothing to be afraid of for some people. Although some of us may owe the IRS money this year, others may receive funds from a tax refund. Depending on the amount you receive, there could be multiple ways to spend your tax refund to bolster your finances. Tax refunds of over $1,000 are especially helpful, as you could use this extra money for multiple purposes.
Consider the following actions if you receive a tax refund this year.
- Set Up a Savings Account
- Save for Health Expenses
- Save for College
- Pay Off Debts
- Save for Retirement
- Invest in Your Career
1. Set Up a Savings Account
Life may decide to give you lemons at any moment. Job loss, illness, a death in the family, an injury, or a demotion are all reasons why you could suddenly need access to money. Unfortunately, 59 percent of Americans cannot cover a $1,000 emergency. Be like the other 41 percent of Americans by saving money for an unexpected calamity.
Savings accounts save crucial funds and grow the balance. You can even have the IRS direct deposit your refund into three separate savings accounts.
2. Save for Health Expenses
You could save money specifically for health expenses. This is an advisable course of action if you or someone in your immediate family has a chronic illness. Savings can also help you pay for prescription medications.
If you have a health savings account (HSA), then you could reap several benefits by bolstering it with your tax refund. You could receive tax benefits. Even if you do not have an HSA, it is advisable to save for an unexpected injury or illness. Health care can be prohibitively expensive, even with an insurance policy.
3. Save for College
College is not cheap for most people. If it were, then student loan debt would not be standing at $1.5 trillion. Most people will need to save for college or obtain some other type of financial assistance.
One effective way to save for college is to use a 529 plan, which also has tax benefits. A 529 plan is a “qualified tuition plan” that could help you pay for future college courses at current market prices. There are a couple of ways to use a 529 plan, and your available options for using one could vary.
4. Pay Off Debts
Tax refunds can help you improve your current financial situation. You could use the money from your refund to pay down your existing debts. If you have student loans, vehicle payments, a mortgage, credit cards or medical debt, then you should consider using your refund to strategically pay these debts back. For instance, if you have both private and federal student loans, you could use your tax refund to make a very large payment on the private loans.
By paying off your debts, especially past-due ones, you are potentially protecting your paycheck and property from seizure. Extra money can help you get ahead of interest and paying back your debts will boost your credit scores over time.
5. Save for Retirement
You can use savings for a number of situations, but you should consider making your retirement a top priority. Let’s be honest, very few people would be comfortable working for the rest of their lives. Consider using your tax refund to strengthen your IRA. At some point in the future, you may find that you are very happy about this decision.
6. Invest in Your Career
There are several ways you could use a tax refund, especially a large one, to help your career prospects.
For example, you could purchase software for your industry and start taking on your own clients. You could take courses that relate to your career, such as website development or coding. By investing in your career, you could set yourself up to make far more money in the future. Just be sure that your employer, if you have one, is not willing to cover these expenses before you spend your tax refund.
About Our Kansas City Bankruptcy Attorneys
The Kansas City bankruptcy attorneys at the Sader Law Firm can help resolve creditor collection issues and other financial problems. If you have questions about protecting your property and discharging debts, then we encourage you to contact us for a consultation. You can reach us by dialing (816) 281-6349 or by using the contact form on our site.