According to the IRS, the average federal tax refund for personal tax filers was $3,267 in tax year 2019. While it might be tempting to see this extra cash as a chance to splurge, consider using it to improve your finances. Here are seven smart strategies for using your tax refund.
An emergency fund helps protect you when you face unexpected financial troubles.
The number of adults who could pay a surprise $400 emergency expense with cash or savings
The months' worth of living expenses financial experts recommend keeping in your emergency fund
An IRA allows you to save for retirement in a tax-advantaged way. Contributions to a Traditional IRA may be tax deductible. Contributions to a Roth IRA aren't deductible, but you can pull the money out tax-free in retirement.
The maximum amount you can contribute to an IRA for 2021 if you're under age 50
The additional catch-up contribution if you're age 50 or older
Using your tax refund to expand your skill set can help you get a new job or earn a higher salary.
The amount of time necessary to complete a certificate program for these in-demand careers:
Recently had a baby or adopted a child? Start saving for their education with a 529 plan. Money in a 529 plan grows on a tax-deferred basis, and you can make tax-free withdrawals to cover qualified education expenses.
The amount you can save in four years if you contribute $300 per month to a 529 plan (assuming a 2% annual investment return)
Number of states that offer state income tax benefits for 529 plan contributions
Making an extra payment toward your student loan helps you pay less total interest over time.
The percentage of American adults who have outstanding undergraduate student loan debt
The percentage of millennials who say they haven't bought a home because of student loan debt
Estate planning ensures your assets will be distributed according to your wishes after you pass away. It can also make it easier for family members to handle your finances and medical decisions if needed.
The average cost to have an attorney prepare a simple will or power of attorney document
The hourly rate to have an attorney prepare more sophisticated estate planning documents
HSAs are available to people covered under a high-deductible health care plan (HDHP). Contributions are tax deductible, the money grows tax-free in the account, and withdrawals are tax-free as long as you use them to pay for qualifying health care expenses.
$3,600 – The HSA contribution limit for individuals in 2021
T$7,200 – The HSA contribution limit for families in 2021