Why Your Tax Refund May Be Late

Why Your Tax Refund May Be Late

Tax season is officially over, and many people have either received a generous refund or are anticipating one.

However, the IRS has been backlogged like never before. So, below we have some tips on managing your refund money, but keep in mind, that it may come later than you are used to!

Paying off debts and credit cards

There are several ways you can invest your tax refund to work for you in both the short and long term instead of enjoying a quick spending spree.

Most of us have at least one credit card or loan agreement. This is how we keep our credit score active and healthy, but it’s a tricky business.

If you have more than one credit card or debit, it’s an excellent first step to use your tax refund to pay off some of your loans or credit cards.

Start with the ones that have the highest interest rates. Higher interest rates cost more money in the long run, so resolving these debts will keep more cash in your pocket.

Paying off loans or long-standing debts is also a good way to boost your credit score in general. A better credit score means more options if you’re hoping to invest in a high-cost venture in the near future.

Setting up an emergency fund

Emergencies happen, and so do the associated expenses. For example, hospital bills or the fallout from car accidents or other disasters can be costly.

There’s also the threat of lost income to consider. Of course, we all hope it doesn’t happen, but sometimes we find ourselves facing lost jobs or fewer work hours, or even pay cuts.

That’s why setting up an emergency fund is a good idea. There are several ways to set aside a nest egg to protect against unexpected incidents.

The most common is a straightforward, easy-access savings account.

How much should I set aside in an emergency fund?

The minimum recommended amount is one month’s expenses, including rent/house payments, utilities, groceries, etc.

The most common recommendation is to set aside enough for three to six months’ expenses since some emergencies take months to resolve.

Financial advisors

Financial advisors are paid to know the best ways to manage money and give you the best advice possible.

Navigating the different options for money management and investing can be difficult. Using part of your refund to get expert advice is a good investment.

In addition to suggestions for the best methods to invest in, they can also help you find the best resources to help you follow through with your decisions.

Retirement Plans

Retirement plans are an important part of life. They’re some of the most substantial and long-term investments you can make for your future.

Many employers offer retirement plans that will match the money you put into your future. This means that every investment you make in your future will be doubled.

401ks, IRAs, and Roth-IRAs can help you plan and save money later in life.

401(k), IRA, and Roth IRA

  • 401(k)s are employer-sponsored retirement funds. These are the most likely to be employer-matched.
  • IRAs are also usually employer-sponsored. As a result, you don’t have to pay taxes on the money until you begin making withdrawals.
  • Roth-IRA accounts aren’t employer-managed, and money put in is taxed initially. But you can make tax-free withdrawals once you reach 59.5 years old.

There are more details for each retirement plan, so do your homework before you begin. But whichever plan you wind up using, putting some of your refunds aside to invest is a good idea.

Health Savings Account (HSA)

Most of us have health insurance to cover basic situations that might arise. But if you have a plan with a high-level deduction threshold, you may want to look at the added benefits of an HSA.

HSA funds and contributions are tax-free. Making regular deposits and using these funds can save up to 25% on medical costs.

Deposits into HSA funds are also taken from your net income for the following year, meaning you have the potential to pay lower tax rates.

HSA funds can also be used like regular retirement funds once you reach age 65. Funds withdrawn after that point are subject to the same taxes as IRA or 401k funds, but only if they are used for purposes other than healthcare.

Investing in college funds

If you have kids, depositing funds in a savings account for future college expenses is a good investment.

Even if you don’t have kids, it’s not uncommon for people to consider furthering their education before or after retirement.

Learning new skills and taking up new occupations; if you’re considering these options, then setting aside some of your tax refunds for the future is a wise investment.

Investing in the Stock Market

A lot of people say that you should invest in the stock market, especially if you want to make money in the long run.

You can put money aside for stocks and bonds in order to build the most diverse and secure investment portfolio possible.

This is a riskier option than some other investments, and you can lose money if you aren’t careful.

Asking an expert stockbroker to help is a good idea if you decide to go this route.

There are also apps, like Acorns or Robinhood, where you can invest small amounts to have tiny shares in various stocks. With these apps, you can start investing five dollars or less.

There are also more professional apps like Ameritrade and E-Trade.

If you’re wary of playing the stock market, then these might be some options where you can make investments that have less chance of doing short-term damage to your bank account as you learn what works best for you.

Donations to charity

It could help you pay fewer taxes next year or get more money back. You can donate to charities and non-profits and write them off on your taxes.

Also, donations can be made with cash and items such as clothing, food, or other goods. If you have the records, you can count these as investments in your tax refund for the following year.

It’s also an excellent way to have a positive impact.

Should I put everything in one option?

Everything in one option can make it more powerful, especially if you have specific goals in mind.

Spreading your resources out can give you more options in the future and a cushion for when things go wrong.

In the end, you’ll need to decide based on your current financial status and your goals.

Whatever decision you make, there are benefits to investing your refund instead of spending it.

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