With Spring comes tax time, which for many Americans comes with the promise of a little extra cash in their pockets. With the expectation of a refund comes many options of how to spend — or not spend — the money. Bankrate and St. Charles Herald Guide have some tips of where you should put that extra money.
Start an Emergency Fund
You’ve probably heard the advice that you should have six months worth of expenses stashed in a savings account. But have you actually started to build up an emergency fund? If not, you’re not alone. Bankrate says almost 3 in 10 Americans don’t have emergency savings. But stepping up to build that extra reservoir of money can come in handy if you lose a job, have unexpected medical expenses or if your car breaks down. Regular contributions from your paycheck into a high-interest savings account can give you piece of mind, and the cash from your tax refund can give you a big head start.
— IRS (@IRSnews) April 3, 2016
Pay Off Debt
Everyone wants to get rid of debt, and that tax refund gives you a big opportunity to do so. If you owe money on credit cards or loans, consider clearing all or part of the debt with the highest interest rate. If you have a small debt that you can pay off completely with your tax refund, consider getting it off the books. The psychological boost can do wonders even if your smallest debt doesn’t come with the highest interest rate.
Your tax refund may take longer this year… but at least you’ll get it https://t.co/TrqjtPEmmh pic.twitter.com/uGl5qFQ7uh
— Bloomberg (@business) April 2, 2016
Start a Retirement Account
Most tax payers will reach retirement age, and many people don’t know how much it will cost to maintain their standard of living once they get there. Talk to your bank or financial planner about putting the money in a traditional or Roth IRA or put the extra cash into your employer-sponsored 401 (k). Some employers match your contributions, which puts you even further ahead.
Open a College Fund For Your Kids
Putting money into a 529 can make you feel like you’re taking care of your children’s future educational needs. Withdrawals from a 529 are tax-free as long as you use them for education. A financial planner can help you set up the best plan for your family.
If you’re planning on putting your house on the market, consider increasing its resale value by investing in some improvements. You can chat with a real estate agent about what features are within your renovation budget and can help you sell your home for the greatest price.
As you prepare to file, here is an extra tip: you can take advantage of the IRS’ Free File program if your income is under $62,000, according to USA Today. If your income is under $54,000, you might be able to get tax preparation help from the Volunteer Income Tax Assistance (VITA) program. Even if your taxes are prepared by someone else, never sign a blank return and always keep a copy for your records.
No matter what you plan to do with your tax money, be patient while you wait for your refund. Bloomberg reported in January that enhanced security checks, designed to curb identity theft, may delay return processing this year. That means you’ll get more questions from tax software and the IRS to confirm your identity. New password regulations mean you will prompted to create something a little more complicated than in the past. But despite the security measures, those refunds will come eventually and provide you with a bit of a financial boost.
[Photo by Joe Raedle/Getty Images]