6 Smart Ways to Invest Your Tax Refund
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“But, in this world, nothing is certain but death and taxes.” – Benjamin Franklin.
With April 15 a little over 3 weeks away, some of us may find ourselves owing Uncle Sam money.
Conversely others may be delighted to find out that instead they will be receiving money from the government in the form of an IRS refund, often in the 4 to 5 figure range.
Although there might be a temptation to blow this “new found money” on something frivolous, these individuals have an opportunity to accelerate their path to wealth if these funds are deployed in a meaningful manner.
Jacob H, from Providentmetals.com contacted me hoping to share some insight on how this money may be put to good use.
[Disclaimer: Jacob and I have no financial relationship]
With tax season right around the corner, it’s not only time to ensure that you get all of your tax paperwork together and submitted, but it’s time to begin considering what you’ll do with your tax refund.
While the common inclination for many people is to spend their tax refund on something they’ve long wanted—a new television, an instrument, a vacation—you should consider how you can make the most of it.
Here are six ways that you can make the most of this year’s tax refund, investing it to benefit your future self.
1. Invest With Foresight: Consider an Emergency Fund
Do you ever feel worried about how much money you have on reserve, say in the event of a structural issue to your home, health scare or layoff?
Have you had a lingering issue with your car that you’ve avoided dealing with?
Has your home washing machine become more of a fixture and less a working appliance due to its mechanical failures?
While overlooking these issues can be understandable, dependent upon your financial situation, you can utilize your tax refund to properly take care of these issues.
Even if your tax refund is around $2,000, that’s money that can be stored into a savings account in the event of a “rainy day,” or can be applied to necessary maintenance of expensive items in your possession.
2. Pay Off Some (or All) of a High-Interest Loan or Debt
If you have high-interest credit card debt or loan debt sitting around, now is the time to pay it off.
Financial advisors and planners state that paying off high-interest loans is one of the smartest investments you can make, as it will save you a great deal of money in the long run.
Even if you have a credit card with an APR of 17 percent (which is on the lower side), that is still a notable percentage of interest.
Paying off the better part of that debt is like seeing a 17 percent return on your investment (ROI), as that’s money you won’t have to pay in the future.
When it comes to loans like student loans, mortgages, car payments and more, you’ll want to weigh which interest rates are more worthwhile to pay off at the time.
Like any investment, you want to weigh your ROI, guaranteeing you are making the most of your tax return.
3. Contribute More to Your Retirement Plan
If your employer is already matching your 401(k) or 403(k), you should consider increasing the amount that you’re contributing.
With the IRS increasing the limits for how much taxpayers are allowed to contribute to their 401(k) each year, there’s no better time than now to begin contributing more to your retirement funds.
Besides utilizing your tax refund, consider freeing up money elsewhere to increase your yearly contributions, either by reducing your withholding while increasing 401(k) contributions or decreasing frivolous spending elsewhere and diverting that to your retirement account.
4. Invest in a Self-Directed IRA
While a traditional IRA is limited to investments such as cash, stocks and bonds, a self-directed IRA provides you with the option for alternative investments.
In particular, rather than relying on the inherent value of the U.S. dollar (which has been in decline) or the power of large banks and brokerages, you can invest in the power of precious metals such as gold and silver.
Once you have found a reputable custodian—a trustee organization that will physically look over your precious metal investment portfolio for you—you should take your time researching the spot price of precious metals like gold, silver and copper.
Once you have a price that you are willing to settle on, it comes time for you to make your investment.
You’ll be putting your tax refund to good use, investing in an asset that will prove beneficial in the future, all the while allowing you to rely on a paperless investment.
Unsure of what precious metal items are worth your investment?
5. If You Have Children, Invest in a College Fund
Looking to save money, for both you and your children, in the future?
Look no further than a college fund!
A 529 Plan, an education savings plan, is the place to start if you think this is right for your family, as you are able to invest your tax refund into a tax-free account, accruing interest over time to cover qualified higher education expenses.
There are two options currently available under the 529 Plan: (1) the Prepaid Tuition Plan and (2) Education Savings Plan.
The Prepaid Tuition Plan allows for you to purchase credits ahead of time at participating universities and colleges, while the Education Savings Plan allows you to set money aside for fees such as tuition, room and board and more.
6. Donate a Tax-Free Gift to a Charity of Your Choice
Unsure of just what to do with your investment?
Consider investing in an organization that you morally support.
Although you might not think of it, your donations can be managed much like any other investment, allowing you to spend your money on specific charities that you support.
Consider how you manage your investment portfolio.
You ask yourself, “What is the ROI on each one of my investments and which are worth the most of my attention and assets?”
You can ask yourself this very same question when looking into donations, determining the ways in which your money is being used by charitable organizations, asking just how much your dollar is worth.
With this in mind, you can make the most of your tax refund by investing in the most reputable charities within your radar.
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