Don’t allow your tax refund check to burn a hole in your pocket. Instead, let your money grow. If you receive money back from the government this year, try one or more of our five ways to invest a tax return for your future.
Proven ways to invest a tax return for your future
1. Roth IRA
An effective strategy for investing your tax refund is to put the money towards growing your retirement fund. Roth IRA contributions may be withdrawn tax-free in retirement. For 2014 and 2015, contributions of up to $5,500 are allowed for single individuals who earn less than $114,000.
2. U.S. Savings Bonds
Another viable investment option is U.S. Savings Bonds. This option might not offer the highest percentage return for your money, but the growth is extremely reliable. If you are searching for safe ways to invest a tax return for your future, the purchase of U.S. Savings Bonds might be for you.
3. Education savings account
One of the best ways to invest a tax return for your future is to place it in an education savings account where the money grows tax free. We suggest contributing to a 529 account. These type of accounts are a great investment vehicle, because they are also eligible for state income tax deductions.
4. Rebuild an emergency fund
Everyone intends to plan for a rainy day, but research shows that few people have the suggested three to six months of expense funds in reserve. People without this vital safety net could be vulnerable to losing a car or home during a time of personal difficulty. A great way to invest in your future is to rebuild rainy day reserves.
5. Stocks or mutual funds
Investing shouldn’t be exclusively reserved for retirement. This year, try investing some of your tax return check in stocks or mutual funds. This strategy offers higher yields over a shorter period of time. Other options worth considering include CDs and money markets.
As part of personal financial planning, it often makes more financial sense to invest rather than spend. After this tax season, consider our ways to invest a tax return for your future before spending frivolously.
At DeFreitas & Minsky, we specialize in all aspects of tax returns on Long Island. If you need advice about ways to invest a tax return or would like any other assistance, please call DeFreitas & Minsky Certified Public Accountants at 516.746.6322 for more information.