How to Use Your Tax Refund Wisely
If you’re expecting a tax refund this year, now is a best time to start planning how you’ll use that extra money. The best uses are to pare down debt and bulk up your savings. For instance, you can:
1. Open an emergency fund or add to your existing one. Aim to save enough to cover three to six months of expenses for those unexpected emergencies, like your car breaks down, your refrigerator dies, or you lose your job. Put your tax refund into a savings account opened specifically for these emergencies.
2. Fund your IRA. For 2020, you can make up to a $6,000 contribution ($7,000 if you're 50 or older) to a Roth or a traditional individual retirement account (IRA). Keep in mind, you must have enough earned income to cover the contribution.
3. Open a 529 plan. If you save for your child's college education in a 529 plan, you may get a tax deduction for your efforts. Check with your tax advisor if this applies to your tax situation.
4. Take a class to improve your career prospects. If you think you lack certain skills to get ahead in your career, use the refund to purchase classes to learn those skills.
5. Pay off debt. Use your refund to pay off any high-interest-rate credit card debt you may have. Try to pay off the debt in full so you can stop getting interest charges added to your balance every month.
6. Start a holiday account. This account lets you save for holiday spending year-round so you don’t have to rely on credit cards in December. If your employer offers direct deposit, make saving even easier by having a set amount automatically deposited to this account.
Copyright 2019 Credit Union National Association Inc.
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