9 Ideas For Investing Your Tax Refund, #196

Retire With Ryan

Do you usually get a tax refund? What do you typically do with your tax refund? Do you have it earmarked for a specific purpose? As we’re inching closer to the tax filing deadline, I thought it would be interesting to share some ways you can wisely invest your tax refund. I’ll cover 9 ideas you can consider to make good use of your money.

You will want to hear this episode if you are interested in...

• [1:42] Why are you getting a tax refund?
• [2:36] Idea #1: Save it for next year's taxes
• [3:03] Idea #2: Increase your savings
• [4:05] Idea #3: Pay down high-interest debt
• [4:49] Idea #4: Contribute to a Roth IRA
• [5:12] Idea #5: Home improvement projects
• [6:02] Idea #6: Increase retirement contributions
• [7:08] Idea #7: Plan a vacation
• [7:51] Idea #8: Invest in yourself
• [8:32] Idea #9: Buy US Savings Bonds

Why are you getting a tax refund?

If you’re getting a tax refund, you should be asking why. You’re giving the government a free loan for the entire year. You aren’t paid interest when you receive a refund. Why not investigate if you can increase your withholdings, so you can keep more of your money? If you are going to get a refund, here are some ways you could invest it.

9 ideas for investing your tax refund

1. Save it for next year's taxes: If you think your taxes will increase because your income fluctuates, it might be a good idea to set the money aside in a short-term CD or money market.
2. Increase your savings: You need 3–6 months of living expenses in an emergency fund (which could be kept in a short-term CD or money market) in case you lose your job or another unexpected situation arises.
3. Pay down high-interest debt: If you’re carrying credit card or student loan debt in excess of 10%, pay it off as soon as possible. Why 10%? Because it’s hard to earn more than 10% over time in the stock market as an average annual return.
4. Contribute to a Roth IRA: If you don’t have a Roth IRA, you can set one up (provided you qualify) and start contributing to it.
5. Home improvement projects: Improving your kitchen or bathroom(s) can increase the value of your home down the road. Even an outdoor patio or deck space may be a good investment to get a return on your money.
6. Increase retirement account contributions: If you still have room to contribute to your 401k, you can increase what you contribute through payroll contributions. Or, you can shift your tax refund into the account over time. If you contribute more throughout the year, less will be sitting with the IRS for you to get back in a tax refund.
7. Plan a vacation: We don’t know what the future holds. If you’ve wanted to plan a specific trip for a long time, why not take some of this money and invest it in a trip?
8. Invest in yourself: Can you take a course? Get a designation in your field? These things can pay large dividends down the road, especially if they help increase your income or get you closer to a job promotion.
9. Buy US Savings Bonds: The interest they pay is based on a fixed rate when you buy the bond and a variable rate tied to the consumer price index. You’d always get a minimum for the life of the bond and a variable rate every six months.

Listen to the whole episode for a more in-depth look at each idea!

Resources Mentioned

• Retirement Readiness Review
• Subscribe to the Retire with Ryan YouTube Channel
• I bonds interest rates

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