With Spring comes warmer temperatures, budding flowers and quite possibly, a government check. Last year, the Internal Revenue Service processed more than 236 million tax returns, resulting in a net collection of more than $1.9 trillion in taxes. Nearly 124 million filers received a tax refund and/or an economic stimulus check, and those individual tax refunds totaled $321.3 billion last year.
So, what do you plan to do with your government windfall? You can spend now, or with a little planning, you can turn a little money now into more money down the road.
Here are a few ideas that just may make this gift keep on giving.
1. Add to Your Retirement Savings.
There are few things better for investing for the long term than tax deferred, compounded growth. Assuming an average annual rate of return of 10%, a $2,500 deposit now should grow to more than $10,000 in 15 years. In addition, you may be eligible to have your tax refund deposited directly into your Traditional or Roth IRA. Remember, in 2010, you can contribute up to $5,000 into either type of IRA and an extra $1,000 if you are 50 or older.
2. Invest for College.
Your child’s college education could be one of the largest investments you will ever make. This is particularly true if you have more than one child you are trying to educate. According to SavingForCollege.com, on average, college tuition is increasing by about 6% a year. Last year, the average public university increased its tuition by about 6.5%, while a private education increased by 4.4%. Perhaps you should consider a state-sponsored 529 College Saving Plan, as a way to build tax-advantage savings for funding a future college education. The choices available are both increasing and improving. Depending on the state’s plan, contributions may be eligible for a tax benefit.
3. Invest in Yourself.
One of the best ways to improve career prospects and income potential is continuing education in your field. It may be improving your computer proficiency, acquiring an MBA or getting additional certification. You may be able to use your new qualifications to make the case for a raise or a new, better paying job. In addition, next year at tax time remember to include any education related tax breaks you may be eligible for when filing your taxes. Be sure to check with your employer to determine if they could help you with training expenses.
4. Create an Emergency Fund.
One of the best ways to improve your financial future is to be sure that you have an appropriate amount of emergency reserves readily available. The last thing you want to do in an emergency is to be forced to sell an asset to raise cash when it is at an all-time low, or borrow money when rates are at an all-time high. Keep these reserves in risk free, readily available investments, such as, FDIC insured deposits or CDs, and set them aside for that rainy day.
If you have any questions or would like more information, contact Henssler Financial at 770-429-9166 or at [email protected]