#53. Maximize Your Money: Smart Ways to Invest Your Tax Refund
Are you ready to turn your tax refund into a powerful tool for building wealth? With the tax deadline just around the corner, now is the perfect time to start thinking about how to invest your refund wisely.
Generally, there are two ways you could think about a tax refund check. One, you could have already been counting on it to help pay the bills going forward. Or two, you could see it as extra money for the month. This article is for those readers who see it as extra money for the month
Rather than spending the money on frivolous material possessions, why not invest it in your financial future? I will go through five different ways to turn your tax refund into a powerful tool for building wealth.
One. Invest in a retirement account.
This could be a traditional IRA, 401(k), 403(b), 457, or my personal favorite, a Roth-designated account. Early in the year, there is a good chance you have not maxed out any of your retirement accounts. So, why not put the money straight into one of these and act like you never had it?
When choosing a retirement account, consider the tax implications of each option. A traditional IRA or 401(k) offers tax-deductible contributions, which means you can reduce your taxable income for the year. A Roth IRA or Roth 401(k), on the other hand, offers tax-free withdrawals in retirement.
Oh, and if you are curious, a $1,000 tax refund invested in a Roth IRA at 30 years old could be worth over $10,000 if you retired at 60 years old (this assumes an annual 8% return)!
Two. Invest in your child's 529 account.
A 529 account is a tax-efficient way to save for your child's education. Contributions to a 529 account are made with after-tax dollars, but any earnings on those contributions grow tax-free as long as they are used for qualified education expenses.
A 529 is traditionally used for college costs, but it can also be used for educational costs for grades K-12.
When choosing a 529 account, consider factors such as fees, investment options, and state tax benefits. Some states offer tax deductions or credits for 529 contributions, which can provide additional benefits.
Lastly, due to a recent change in the law, you can roll a 529 plan into a Roth IRA starting in 2024! However, before implementing this rollover strategy, please consult a tax professional.
Three. Invest in your health.
Investing in your health can mean different things to different people, but the goal is always the same: to prioritize your physical and mental well-being.
Been planning on joining a new gym? See if you can get a better deal if you buy a 1-year membership in advance.
Been planning on running more? Sign up and pay for a 5k and 10k race a couple of months in the future.
Been planning on reading more? Buy multiple books that you have wanted to read or buy a NOOK tablet.
At the end of the day, investing in your health is a personal decision that should be based on your own goals and priorities. No matter how you choose to spend your money on your health, make sure you do it quickly to avoid spending it on other things first.
Four. Invest in your memories.
If you already have a sound financial foundation with an emergency fund and a monthly investment plan setup, you may choose to spend the money on a family vacation, exploring a new city, taking a solo trip to a place you have always wanted to visit, or another memory building experience.
Investing in your memories is a great way to create lasting experiences that can bring joy for years to come.
If you are interested in hobbies or other experiences, consider investing in equipment or supplies to support your passions. This could include things like a new camera for photography, a musical instrument for playing music, or art supplies for painting or drawing. When making this decision, consider your interests and goals, as well as the cost and quality of different options.
You may not remember what you bought 10 years ago, but you will remember driving across the country with your spouse. Be mindful of how you choose to invest in your memories.
Five. Invest in your side hustle.
You may have been planning to start a side hustle for years now, but you have yet to pull the trigger. There comes a point when you have to stop planning and just start.
Investing in your side hustle can be a smart way to turn your passion into a profitable venture. Getting a tax refund check is a great excuse to actually start.
It can be used to pay attorney fees to draft any initial paperwork or pay for a website domain. You could also pay for online educational courses or other forms of training. There are many ways you could use a tax refund check to start the side hustle adventure.
Receiving a tax refund check can be an opportunity to invest in your financial future and make a positive impact on your life.
Whether you choose to invest in a retirement account, your child's education, your health and wellness, your memories, or your side hustle, the key is to make a conscious decision about how to spend the money. By investing in yourself and your future, you can build wealth and achieve your financial goals.
If you like this article, please click the heart icon, share it, and subscribe to get new content sent directly to your email as soon as it is published!