If you’re expecting to receive a refund in 2017 and don’t need the money right away for day-to-day expenses, consider using it to give your financial situation a boost. As tempting as it may be to spend the cash on something fun, think about how you can use the payment as an opportunity to make a long-term positive impact on your finances. Here are six ideas to get you started.
If you have credit card or other high-interest debt, consider using your tax refund to cut your remaining balance. By doing so, you’ll reduce your monthly interest and repay your debt more quickly, which will ultimately help you save over time.
Financial experts typically recommend setting aside three to six months’ worth of living expenses to help cover unanticipated costs—like a car repair or new water heater—so you don’t have to dip into long-term savings or take on debt. Your tax refund can help establish or boost your emergency savings fund, which can help give you peace of mind and protect your finances in the long run. To make it easy, you can even have the IRS deposit your tax refund directly in your emergency savings fund.
Saving the money you receive through your tax refund could add up over time. If you’re expecting to receive a large tax refund each year, consider increasing your contributions to the UC 403(b) and 457(b) Plans to offset the extra money from your tax refund.
Alternatively, if you have an outstanding loan in your UC 403(b) or 457(b) Plan, use your tax refund to pay off your balance.
Consider contributing to a college savings fund if you’re already saving for retirement and aren’t carrying any high-interest debt. As a UC employee, you can make contributions to a ScholarShare account directly from your paycheck. Any investment earnings have the chance to grow tax-deferred. Better yet, as long as the distributions are used to pay for qualified college costs, they aren’t subject to federal taxes. Learn more at www.scholarshare.com.
Your tax refund could also be used for continuing education programs to help you build new skills and develop your career at UC. Plus, UC offers a number of learning programs, both on campus and online. UC faculty and staff are often eligible for course discounts. To learn more, visit extension.universityofcalifornia.edu.
Regardless of how you use your tax refund this year, you may want to reduce your withholdings to prevent a refund in 2018. While a refund sounds great, it really means you paid too much in taxes during the year. It’s money you could have used to pay bills, save, invest, or reduce your debt, but instead was paid to the government, interest-free. Determining how much to pay in taxes can be difficult, but if you’re able to make an adjustment, your finances may ultimately be better off if you avoid a refund in the future.
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