Here are the best places to stash your 2021 tax refund
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On average, the IRS issued 45 million refunds in this fiscal year. $3,352 each.
This is more than $500 more than the average refund last year. just over $2,800.
A lump-sum payment this large is not common for Americans and less people would like to waste it.
Now, nearly half — or 46% — of tax filers plan to save their refundsAccording to a LendingTree surveyThis is an increase of 41% and 40% from last year, respectively.
Greg McBride (chief financial analyst, Bankrate.com), stated that the tax refund is often one of the largest windfalls households get all year.
Experts recommend that you focus on the long-term to maximize your money. This is especially true if you have been severely affected by the recession. pandemic.
There are three options to use your tax refund for your future.
1. Save for an emergency!
The Pandemic has left 34% of households with less emergency savings today than they had before it. This is more than 13%. Bankrate.com.
McBride explained that “Households who suffered income disruption due to the pandemic” will most likely have to rebuild their emergency savings.
Find out more from personal finance:
There are just weeks until the tax deadline
Here’s why your tax return may be flagged by the IRS
Here’s what every taxpayer needs to know this season
Most financial experts recommend stashing away at least a six-month cushion — or more if you are the sole breadwinner in your family or in business for yourself.
McBride stated that direct deposit of the tax refund to an emergency savings account can be a good way to make a big financial leap and provide a cushion for what lies ahead.
2. ‘Turbocharge’ your retirement
Rita Assaf (Vice President of Retirement Leadership at Fidelity Investments) advised that if you have a strong emergency fund, it’s time to consider retirement savings.
She said, “This is an excellent way to boost your savings.”
Assaf suggests contributing to at least 20% to your employer retirement account in order to fully take advantage of the employer matching or, if feasible, to the maximum amount that workers younger than 50 can contribute in 2022, which is $20,500.
3. You can plan for your kids’ future
Mary Morris CEO of Virginia529/ABLEnow said, “If your family has the financial means to do this, leveraging a refund from the tax to fund education and disability savings can be a wonderful opportunity to support long term goals.”
There are many 529 college savings plansYou get tax benefits better than a savings account.
Not only can you get a tax deduction or credit for contributions (currently 34 states and the District of Columbia offer a direct state tax deduction for your contributions), earnings grow on a tax-advantaged basis and, when you withdraw the money, it is tax-free if the funds are used for qualified education expenses such as tuition, fees, books, and room and board.
You will generally need to open an account before you can start, but many plans allow you to begin with $10 or less. She added that money can be grown without federal taxes and that a lump-sum payment may help you to reap the potential market gains.
Similar to the above, you could also save up $16,000 for an emergency fund ABLE accountThe – is another tax-advantaged savings program that can be used by people with disabilities as well as their families.
The money held in ABLE accounts can grow and be withdrawn without tax. It can also be used to pay for housing or long-term care. There are no restrictions on how many withdrawals you can make.
Using your tax refund to put a few hundred — or thousand — dollars in into one of these accounts could be “a real game changer for families that have not been able to save or plan for the future,” Morris said.
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