“When you know better you do better.”  – Maya Angelou

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Heads or Tails?

Yesterday, I spoke about The Fallacy of the Tax Refund.  It was important to express my angst with the buffoonery depicted in images of dancing taxpayers because I have never seen that behavior in my firm.  Well, since the world is not all black and white – there is another side of the coin if you find yourself with a large tax refund. 

Education:

I want to teach you how to use a tax refund to establish a financial foundation and framework for investing and savings.   Here is a list of tax-advantaged opportunities to use your tax refund to create your wealth plan.

10 ways to build a nest egg with a tax refund:

  1. Fund a Traditional or Roth IRA account for yourself. (See Lesson #36)
  2. Fund a Roth IRA for your child provided they had any earned income during the tax year. Don’t forget about money earned from babysitting.  Consider filing a tax return for your child to take advantage of this opportunity.
  3. Fund a Health Savings Account (HSA) (provided you have a high-deductible health plan.  (See Lesson #49)
  4. Purchase of Series I bonds with tax refund money. This can be done automatically through your tax return by attaching Form 8888. (See Lesson #23)
  5.  Fund 529 Plan for a child (your child, your niece, your nephew, the kid down the street, etc.) for future education expenses. (See Lesson #43)
  6. Fund a 529 plan for yourself for lifetime learning. (See Lesson #43)
  7. Invest it! (See Lesson #14)
  8. Pay off high-interest credit cards – this will free up additional disposal income sources.
  9. Build up your emergency fund.
  10. Make a charitable contribution.

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Whatever you do, please use your presidents wisely!

Resources:

Where’s My Refund? (http://1.usa.gov/1gbazdp) – Get up-to-date refund information using Where’s My Refund? or the IRS2GO mobile app. Where’s My Refund? is updated once every 24 hours, usually overnight. Refunds are generally issued within 21 days after we receive your tax return. You should only call if it has been longer.

Important terms from this lesson:

Term

Definition
Tax Refund A refund on taxes when the tax liability is less than the taxes paid.

 

Action Step:  Make a plan for your tax refund.