Put your tax refund to work for you
Now that we’re in the midst of tax
season, you may be anticipating a tax
refund, if you haven’t already gotten
one. Of course, not everyone receives a
refund, but, among those who do, the
Participate in The Longevity Project
The Longevity Project is an annual campaign to help educate readers about what it takes to live a long, fulfilling life in our valley. This year Kevin shares his story of hope and celebration of life with his presentation Cracked, Not Broken as we explore the critical and relevant topic of mental health.
amount can be sizable. In fact, in 2005,
the average tax refund was about
$2,125. If you’re going to get a refund,
start planning now on how to use it. By
making the right moves, you can help
speed up your progress toward your
What should you do with your
refund? Here are a few ideas:
– Put the money in your IRA. To
achieve a comfortable retirement
lifestyle, you will need to draw on a
variety of financial resources, one of
which may be an IRA. In 2006, you can
contribute up to $4,000 ” or $5,000 if
you are 50 or older ” to a traditional or
Roth IRA. As an example, if you
received a $2,125 refund ” last year’s
average ” you’d be well on your way
toward “maxing out” on your IRA
contribution. If you think this amount
can’t really make that much of a
difference in your long-term savings,
consider this hypothetical situation: If
you put that $2,125 in an IRA that
earned 7 percent a year, and you never
invested another dime in your account,
your money would still grow to more
than $16,000 in 30 years ” not a
fortune, to be sure, but nothing to scoff
at. (Keep in mind that these rates are
hypothetical and do not reflect the rates
of any investment currently available.)
And in all likelihood, you would not
just make a one-time contribution to an
IRA. At the end of 30 years, you’d have
to pay taxes on your traditional IRA
earnings, but by then, you may be in a
lower tax bracket. On the other hand, if
you had invested in a Roth IRA, your
earnings would grow tax-free, provided
you’ve had your account for at least
five years and you don’t begin
withdrawals until you reach age 591?2.
– Contribute to a Section 529 plan.
Many people contribute to Section 529
plans to save money for their children’s
(and grandchildren’s) college education.
You can put large amounts each year
into a 529 plan, and your earnings will
grow tax-free, provided withdrawals are
used for qualified higher education
– Pay down high-rate debt. Short-term
interest rates have been rising over
the past few months. This could mean
that you’ll be paying a higher rate on
your credit cards ” which probably
carried a fairly high rate to begin with.
If you use some of your tax refund to
whittle down this debt, you’ll be
making a wise move, as this interest is
typically not tax-deductible, and
therefore, of no benefit to you.
– Build up your “rainy day” fund.
You might want to use your tax refund
to build your emergency fund.
Generally speaking, you should set
aside six to 12 months’ worth of living
expenses to pay for such emergencies
as car repairs, new appliances and
unexpected medical bills.
You can’t always count on a tax
refund ” but when you get one, make
the most of it. You’ll be glad you did.
Charlie Wick and Tina DeWitt are investment representatives with Edward Jones. They can be reached in Eagle at 328.4959 and in Edwards at 926-1728.