What would you do with an extra $2,900 in your account? In 2018 (for the tax year 2017), the average tax refund received by direct deposit hovered around $2,940. If you’re due a refund this year, no matter the amount, you can find ways to make it go further. Here are some tips for stretching those dollars.
Putting some of your refund dollars toward a treat just for you can make for a nice reward. Just spend within reason. A little something now may also help curb the desire to make a larger impulse buy.
Add to your IRA
Another way to help yourself is by adding some or all of your refund to an Individual Retirement Account (IRA). This is a good way to boost your retirement savings.
With a Traditional IRA, contributions may be tax deductible. You’ll only be taxed on the deductible contributions you’ve made and the earnings you’ve received over time when you begin making withdrawals. Roth IRAs offer no tax breaks for contributions, but earnings and withdrawals are generally tax-free.
The IRS’ contribution limits page will indicate what the annual limits are. If you haven’t started an IRA, this is a great time to do so.
Establish a rainy-day fund
Use your tax refund to get started on a rainy-day fund or to boost current savings. Set a goal to keep at least three to six months of living expenses on hand for unexpected situations, such as a health problem that keeps you from earning a paycheck. Add your funds to a Money Market Account, which typically carries a higher dividend than a basic savings account. Save the money for a true emergency.
Pay off credit cards
This option may not be as exciting as a new flat-screen TV, but the less attractive option is sometimes the one that makes the most sense. Because your credit cards likely carry the highest interest rate among your debts, start here. If you can knock down — or knock out — this debt with your refund, think of all the money you’ll save in interest alone.
No matter how you choose to spend your tax refund, these tips are a great step toward stretching those dollars.
Article provided by Local Government Federal Credit Union.
The advice provided is for informational purposes only. Contact a financial advisor for additional guidance.