Receiving a Tax Refund
For those who may be receiving a tax refund from the Treasury Department, here is an opportunity to save for future financial goals. Take these funds and use them for retirement planning, college funding, or other planned short-term and long-term financial goals.
Tax Filing and Funding Financial Accounts
Contribute to a Roth IRA
Get a head start saving for retirement. Invest the refund and let it compound all year long. If you are an emerging investor (age 20 – 35), you have a long-time horizon. You may have heard that if you can max out your Roth IRA contributions early in your career, you could potentially have $1 million saved by age 65. See this Roth Illustration for more information on how to get there. The maximum contribution amount for 2024 is $7,000. For more information on how to get started read Where Do I Begin?
Fund a 529 Plan
College education is expensive. Use the refund and contribute to a 529 plan for your child. This money will then be able to grow tax-advantaged and if used for qualified higher education expenses is a tax-free withdrawal. Read more about the Ohio plan You Don’t Need A Special Occasion For Ohio 529 (collegeadvantage.com)
Some states also offer a tax deduction for the funds contributed directly to the plan. An Ohio taxpayer can deduct up to $4,000 in contributions per beneficiary, per year, from their state taxable income, per contributor. If you were to contribute more than $4,000 this year, you can carry the remainder forward into following tax years.
Save in an After-tax Account
Phased out of a Roth IRA because of income threshold limits, kids are out of college, and have a refund coming. Save in an after-tax account and invest for short-term or long-term goals. Planning for a kitchen remodel or new car in five years save in a brokerage account and place the funds into a short-term savings vehicle, such as a U.S. Treasury, CD, or money market fund earning interest. Don’t have any immediate plans for it, consider investing for longer term growth allocating to equities or fixed income.
Everyone’s situation is unique and presents opportunities. Please let us know if we can guide you in your financial decision making. Check out our helpful checklists and resources.
The advisors at Wealth Planning Corporation have been planning, coaching, and advising clients for successful retirements since 1984. We have 40 years of experience preparing and transitioning clients for retirement. Learn more about our team and services at www.wealthp.com
