Expecting a tax refund from Uncle Sam this year? According to the IRS, the average 2019 tax refund for those who received one was $2,833—a significant chunk of change.
If you do receive a refund this year, consider using it to improve your financial situation. Here are six great suggestions.
1. Pay off debt
Credit-card loans crossed the $1 trillion mark this year, reaching $1.08 trillion in the third quarter of 2019 (debt.org). Paying off outstanding bills has many benefits—it improves your credit score, reduces stress, and increases your financial security. Focus on paying off credit cards and other high interest debt.
2. Add to your retirement savings
Add to your current retirement savings plan or open an IRA. You may make contributions before tax (Traditional), after tax (Roth), or some combination of the two up to the IRA limit.
Unsure of which one to choose? Use our IRA comparison tool to determine what may be right for you.
3. Buy more coverage
Umbrella insurance, which provides liability coverage above the limits in your auto and home insurance policies, is often overlooked as an important part of your financial security. You can purchase $1 million or more of additional liability coverage very economically.
Long-term care insurance also helps protect your assets and may be worth a look. It has been called “the greatest uninsured financial risk today.” This is because the majority of costs for extended care services needed during recuperation from strokes, accidents, and illnesses are not covered by your health insurance or Medicare. The chances of needing long-term care usually increase as you age, but long-term care may be needed at any age.
4. Save, save, save
Start an Edvest or other 529 college savings plan for your kids or grandkids. Build up an emergency fund. Start a money market account with a higher interest rate to save for a vacation, a new car, or home remodel. Whatever your goal, you’ll feel better knowing you have a head start on your savings. Our savings calculator can help you understand what it will take to reach your goal.
5. Share the wealth
Consider giving some or all of your refund to your favorite charity. Often monetary donations to charitable organizations are tax deductible, and you’ll feel good knowing your money will go toward helping others in need. WEA Member Benefits Foundation supports public schools and is one way you can give back.
6. Open a Personal Investment Account
A Member Benefits Personal Investment Account offers a way to invest your money outside of a retirement account. It is an alternative to cash accounts such as savings, checking or certificates of deposit and can be registered in your name or opened jointly with anyone. There may also be tax advantages to these types of investments.
Finally, if you received a sizeable tax refund this year, you may want to consider adjusting your income tax withholding. Doing this will reduce your annual refund, but you will be taking home more money each paycheck instead of letting Uncle Sam hold on to it (interest free).