Wise Ways to Use Your Tax Refunds for Retirement

Retirement planning is an important step in ensuring your financial security during your senior years. Regardless of your age, income, or financial status, making smart financial decisions now mean you will have sufficient funds to meet your needs during retirement years. One of those smart financial decisions is using your tax refund money wisely. There are many ways you can use your tax refund money to boost retirement savings. Below are five ways you might or might not have thought about when considering how to spend your tax refund money this year.

Five Ways to Invest in Your Retirement

  • Open an Individual Retirement Account

This choice is a pretty common way to use your tax refunds to plan for retirement. However, you should not open an IRA until you do a bit of research. In some cases, a traditional IRA might be the best option, but a Roth IRA could be a better option for you. Both types of IRAs offer several benefits, but one account might be better for you than the other account based on your current financial situation and your current retirement plan.

One thing to keep in mind is that because you are using post-tax funds, a Roth IRA might be an excellent choice because the contributions are not taxed when you withdraw them, even if you withdraw them before age 59½. Consulting a retirement planning attorney before you invest your tax refund in an IRA can help you maximize the use of your tax refunds.

  • Pay Off High-Interest Credit Card Debt

This idea may not seem like it will help you save for retirement. However, going into retirement with heavy credit card debt can be detrimental to your retirement plans. Many retirees face bankruptcy because they cannot afford to pay their credit card debt after they retire. Furthermore, the interest you will pay on this account can equal thousands of dollars.

For instance, if you owe $8,000 on a credit card with 22% interest and you make the minimum payment of $150 per month, it will take you about 17.5 years to pay the debt in full. The total interest you will pay over 17 years on this debt is $23,430.

On the other hand, if you deposit $1,000 into an account with a 2% annual interest rate and deposit your $150 payment per month into that account, after 17 years, you will have $37,750. It is much better to save for your future than to pay it to a credit card company. If you are unsure what type of account to use for your savings, our retirement planning attorney can help you choose the best way to invest your money to yield the maximum benefit for your retirement.

  • Open a Health Savings Account

Healthcare expenses during retirement are a concern for many retirees. As the cost of medical care, medications, and health insurance premiums continue to rise, many individuals may have trouble covering these costs during retirement. However, you can prepare for those expenses by contributing to a health savings account (HSA). The funds in an HSA roll over each year and can be used to pay health care expenses at any time. HSA investment options can be limited; therefore, you want to consult your retirement planning attorney to ensure this choice is in line with your other retirement strategies.

  • Make Home Improvements

If you are close to retirement age, you may want to consider investing your tax refunds in your home. Home repairs can be costly; however, if you perform general maintenance now, you might be able to avoid costly home repairs down the road. You may also want to make home improvements, such as updating your kitchen or bathroom. Replacing old appliances might also be a wise use of your tax refunds. Taking care of these matters before retirement can give you peace of mind so you can focus on more enjoyable activities when you retire.

  • Fund a College Account

You can help your child by funding a college account. Consider using a 529 college savings plan for college savings. Like a Roth IRA, you use after-tax money to fund the account, so the account grows tax-free. If the funds are used for education, you will not pay taxes on the money withdrawn from the account.  For parents who might be in retirement when their youngest child enters college, a college savings account can be a way to pay for college now for your child instead of when you are enjoying retirement.

Are You Ready to Begin Your Retirement Planning?

The Elder Care Firm of Christopher J. Berry, CELA provides retirement planning services to clients in Brighton, Bloomfield Hills, Novi, Livonia and the surrounding areas in Michigan. Before you decide how to spend your tax refund money, consult our retirement planning attorneys to discuss ways you can optimize your retirement planning, so you have enough money to continue your standard of living during retirement.

For more information or to schedule an appointment with a Michigan retirement planning attorney, call our office at 888-390-4360 or use the contact form on our website.

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