The problem with a big tax return is that you start dreaming. You could get a motorcycle with that extra six grand. Or you could go on a cruise.
You could also pay off student loan or credit card debt. Unfortunately, you can’t do it all. The money won’t stretch as far as a motorcycle and debt elimination.
If you need help deciding what to do with an extra lump sum of money, consider investing it. If you invest your tax refund, it will grow for you and you’ll be able to choose everything, rather than having to decide. Here are the top 8 ways to invest your tax return.
1. Retirement Accounts
The sooner you put money into your IRA or other retirement accounts, the longer it’ll have to grow before you have to use it. Sure, you can use the money for something else and keep talking about putting money in your IRA. But then you’re shortening the time frame that the funds are in the account.
Once you understand your money, you’ll be able to make better investments. A shorter timeframe means drastically reduced returns. If you really want to retire in comfort, now is the time to add those funds to the account.
Then make sure you leave them there, so they have every opportunity to grow.
2. Invest in Your Career
Consider signing up for those career development courses you’ve wanted to take but haven’t had the money for. Sometimes continuing education courses cost a lot of money. But if you’ll be able to make significant advancements in your career with those extra letters after your name, it might be time to plunk the money down and grab every opportunity.
3. Brokerage Accounts
If the average tax return is almost $3000, you oughta be able to make that money work hard. Spend time researching the best online stock trading sites, and determine the best one for you.
After you’ve found the one, take their free courses to learn how to play the stock market to the best advantage. Or hire a broker to help you make the right decisions and get the most out of your tax return.
4. Invest in Your Kids
Even if you don’t have them yet, investing in your kids is worth the money. Look into college savings plans like the Indiana 529 plan or another state’s options. These are often tax deductible.
You can apply the funds to any type of education, from cosmetology school to trade school, along with traditional colleges and universities. And the best part is that you can change the beneficiary. If your kids don’t need the money, you could get your advanced degree instead, or anyone else you name.
5. Household Improvements
Real estate is a great investment, and when you put money into improving your property, you’re doing more with it than if you spent it on retail therapy. Now might be the time to add a deck out back, or replace the furnace before it dies.
Roofs are expensive, and other housing projects can require large loans to fund the projects. Be proactive if you have the tax return, and improve the property to up its resale value. You could even convert part of your home into an apartment and start renting it to guests to make your investment continue working for you.
6. Build Your HSA
Money you put in a Health Savings Account is tax-free three ways. If you put money into it, it’s tax deductible. Or if your employer allocates it for you, then it comes out of your income before it’s taxed.
The funds are also tax-free when you take them out to use them, as long as you spend them on qualifying health expenses. And the money grows tax-free while it’s in the account.
7. Bump up Your 401k Contributions
If you’re getting a refund instead of paying the government this year, invest the money. But if you owe, don’t try to evade payments. The tax debt will catch up with you and you’ll need an attorney to have a better chance of winning your case in court.
Besides an IRA, a 401k retirement account is a great way to invest your tax return. This money could really work for you if your employer has a matching program. If you’re able, max out their match opportunity, because the money they add to your own contributions is free money.
8. Best Way to Invest Your Tax Refund
Fund a local business with some or all of your tax return. If you’re connected with the movers and shakers in your community, chances are you’ve heard of some new startups coming to your town.
Contributing to a local business is a great way to take a bigger interest in your local community and also help boost the local economy.
Making Your Money Work Hard
It’s hard to know exactly how you should invest your tax refund. Whether you decide to invest in the stock market or your retirement, we’re sure you’re doing the smart thing by making sure you grow the money instead of blow it.
You can also invest in your own career and education (or your kids’), your home and real estate holdings, or your health accounts. And if local business is your passion, find a new startup that needs a backer.
Check out our website for more money advice. Or click here to read more about how to spend your money when you accidentally wind up with extra.