Blog , Finance

Four Smart Ways to Spend Your Tax Refund This Year

Posted on Thursday, March 23, 2023
by RoseMark Advisors

Sponsored By: RoseMark

For many Americans, tax time means one thing: a refund is coming! In 2021, the average tax refund was $2,873. It’s easy to see that refund as free fun-money but consider the impact it could have on your financial health if spent wisely. The financial team here at RoseMark Advisors have a few suggestions for making the most of your tax refund.

  1. Pay off high-interest debt

Typically credit cards are the worst offenders when it comes to high-interest debt.  Paying them off should be a financial priority. Generally, credit card companies charge interest on outstanding balances from month to month and the interest rates can range from 12-20%. An unpaid balance can grow quickly if you aren’t paying more than the minimum each month.

The best way to make a 12% return on your money is to not pay it out to creditors. Paying down or paying off your credit cards can instantly improve your financial situation while also raising your credit score.

2. Boost your retirement nest egg

If your credit cards are paid off and you have an emergency fund in place, the next option for spending your tax refund would be to fund your retirement savings.

Funding your Roth IRA or an Individual Retirement Account will add to your tax-free earnings.  By leveraging compound interest, your savings could snowball into viable wealth. One well-invested tax refund could end up paying off in a big way.  

Contributions can be withdrawn at any time without penalty, and required minimum distributions do not apply.

3. Fund a 529 Tax Advantage savings plan for the grandkids

Parents with college aged kids can all agree that costs associated with a college education can be astronomical. The 529 plan is designed to encourage savings for education or qualified tuitions in the future. These plans are sponsored by the individual states. An education savings plan can be used to pay up to $10,000 per year per beneficiary for tuition. 

The saver typically chooses a range of investment options which include mutual fund and ETF portfolios. Contributions can be made annually, and if the beneficiary chooses not to attend college, the funds can be withdrawn (at a penalty).

4. Purchase Life Insurance

What would happen if you were no longer able to provide for your family, pay the bills, and keep everyone fed? Life insurance is a simple contract between you and an insurance company that will guarantee a sum of money in the event of your passing.

But life insurance isn’t just for when a loved one dies. Life insurance is a powerful tool for establishing generational wealth.

Your policy can be used while you are alive to help pay for long-term care services and can even be passed on to the next generation. It’s never too late to buy a life insurance policy, but don’t wait too long. Rates increase with each passing birthday.   

If you would like to learn more about life insurance, contact RoseMark advisors, the exclusive financial planning services of AMAC.

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1 year ago

My tax refund looks way below average, none of those items apply to me, so the least i can is sock at least 10 % to savings.

David Millikan
David Millikan
1 year ago

Left the most important one out…Treat yourself.

1 year ago

Why don’t you use it to pay off your student loan?

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