Are you expecting
an income tax refund? You are not alone. In
2016, the average tax refund
amount was $2,782 and the IRS issued over $302 billion in refunds. Use your
refund wisely! Consider the following ideas:
¨
Save for Emergencies- Aim to set aside at least 3 to 6 months
expenses in a money market fund or bank account. This is your “fall back fund” in the event of
unemployment or unanticipated expenses.
¨
Pay Down Debt- The more debt you repay, the less interest
you will owe. Paying down an 18% credit
card balance is like earning 18% on an investment- plus it is a guaranteed return
and tax-free!
¨
Start an IRA- A one-time $3,000 tax refund invested in an
IRA containing a stock index mutual fund with an average 8% return will be
worth almost $31,000 in 30 years. A
$3,000 tax refund invested every year
for 30 years will be worth over $370,000.
¨
Invest in Mutual Funds- Most mutual funds allow investors to open an
account with $3,000 or less. Choose a
fund with good historical performance, low expenses, and an objective that
matches your investment goals.
¨
Improve Your Skills- Use your refund to take courses or attend
conferences that will make you a more skilled and valuable employee. Economists
refer to this as “building your human capital.”
¨
Review Your Tax Withholding- A large refund indicates that your tax
withholding is incorrect (over-withholding).
Hire an accountant or financial planner to review your finances or use
the online IRS Withholding Calculator.
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