4 Ways to Invest in Your Future with Your Tax Refund
Tax season is upon us, providing many people with a little extra income in the form of their tax refund. If you've benefitted from a tax refund, here are a few ways to invest this money back into your personal and financial health.
1. Pay Off Existing Debt
It's difficult to plan for the future if you're still dealing with debt from the past. Consider using your tax refund to help pay off any existing debts you may have. This may help you approach your financial planning with clarity and without the emotional burden debt often carries.
2. Build an Emergency Fund
Life can be filled with unexpected expenses, and it's important to build an emergency fund if you don't already have one. Ideally, you should have enough saved to cover three to six months' worth of expenses. Even if you can only afford to save a small amount of money for your emergency fund, saving a little is better than nothing at all.
3. Max Out Your HSA Contributions
If you own a Health Savings Account (HSA), the 2020 contribution limits are $3,550 for individual coverage and $7,100 for family coverage. Remember - this money can roll over year to year. If you have not already contributed the maximum amount into your account, you may be able to add a one-time lump sum payment into your account. Your HSA provider or employer can guide you on how to do this.
4. Contribute to Your Retirement
Any time you receive extra money, consider contributing an amount into your retirement plan(s) if you have not already maxed out your contributions. Here are the maximum contribution rates for different retirement plans in 2020.
|Plan||2020 Contribution Limit||Catch-up Limit If You're Over 50|
The Bottom Line
These are just a few ways you can be kind to yourself with the extra income you may receive through a tax refund. Whether you receive $500 or $5,000, it's up to you to decide how you will use this money.
This blog is up to date as of March 2020 and has not been updated for changes in the law, administration or current events.