You’ve finally received your long-awaited tax refund now the question is what to do with it? You could go shopping, perhaps treat yourself to the latest gadgets with the hopes that something new and improved doesn’t come out to make your purchase obsolete. But, with the average tax refund at $1,949, down nearly nine percent from last year, you may want to be more careful with how you spend your tax refund since you’re likely to have less money this year. Tax experts MaryAnn Monforte and John Petosa, professors of accounting practice at Syracuse University’s Martin J. Whitman School of Management, have some tips on how to spend your tax refund wisely and get the most bang for your buck.
Paying Down Debt
If you have any outstanding balances, Petosa and Monforte encourage you to pay it off or at the very least reduce the balance, especially if you own on a credit card.
According to WalletHub’s Credit Card Landscape Report, as of Jan. 2019, the average credit card interest rate is nearly 20 percent for new offers and almost 15 percent for existing accounts.
“Interest rates are usually very high on revolving credit facilities and there is absolutely no benefit to paying interest,” said Monforte.
Make A Donation
According to Petosa, making a charitable donation can be a good use of your tax refund and can potentially earn you a tax deduction come next year depending on if you still itemize your deductions.
“Consider donating to a good cause or even your alma mater,” said Petosa. “Lots of times companies will match employees’ gifts, helping your donation go even farther.”
Companies such as EY, Deloitte, Macy’s and more offer gift matching. Petosa encourages employees to explore matching options and do their research before donating.
“Many people are surprised to find that employers offer matching programs or that employer matching programs can be applied to donations to universities or schools,” said Petosa.
Consider Investing in a 529 Plan
“You could start or add to your child’s 529 plan,” said Petosa.
A 529 savings plan allows you to put aside tax-free dollars to save for college expenditures for your child or grandchild. While paying into a 529 plan is not tax deductible, the benefit of building a college fund is that you will be helping to save your child or grandchild from college loans in the future. According to a 2018 Forbes article, collective student loan debt in the U.S. alone reached around $1.5 trillion.
Invest in or start an Individual Retirement Account (IRA)
While using your tax refund now may bring you instant gratification, using the money to invest in your IRA can help you have security in your future. An IRA is considered an individual employment plan, separate from a 401K which is an employer pension plan. According to Petosa, the money invested in an IRA is not taxable until retirement. This is, explained Petosa, the same with the interested generated from the IRA. By investing in an IRA, you’ll be able to accumulate more retirement money over time.
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