In 2019, sixty seven (67%) percent of all taxpayers received refunds that averaged $2,860. Now what do you think what be the best thing to do to maximize that amount? Let’s look at a few scenarios; Are you still working? Or, are you retired?
First let’s look at you are still employed. A good rule of thumb is to have six months of living expenses saved for the event that you get laid off or get sick and can’t work. This would be a good time to start that savings account. Do you have credit card debt? Another positive for the refund would be to pay off or pay down that credit card debt. You could save thousands of dollars in interest payments by applying your tax refund to the credit card bill. Have you made any plans for retirement? You could use that tax refund to open an IRA account. A ROTH IRA is a great vehicle to fund your future. A ROTH IRA is post taxed and when you are eligible to legally withdraw it, you don’t have to pay any taxes (even on the profits you made from the investments). This could be a good way to supplement your retirement income.
OK, let’s look at the option that you are already retired. If you are retired hopefully you are receiving some form of retirement income. Once again, paying off or paying down credit card debt saves you tons in interest. Then, once you have the credit card payments eliminated you can shift those payments to a savings account or some other debt. If you still have a mortgage, use the money you were paying on the credit card to pay extra principal on your mortgage. Paying an extra one payment a year will take a 30 year mortgage to approximately 18 years.
Either way, put your refund to good use and reap the benefits.