Interest money

Financial Advice in New Hampshire: Your Tax Refund

Advice offered by Marc Hébert, president of The Harbor Group Inc., certified financial planner. If you have any financial questions or would like to suggest a future topic, email [email protected] It’s hard to believe the number of income tax refunds the IRS processed for the 2020 tax year. It was over 128 million. In total, approximately $355.3 billion in tax payments were refunded to taxpayers. Reimbursement “found” money for some and provided money for others. Let’s see how some 2020 taxpayers thought they could use the money. Of the recipients, 27% planned to use the money for existing expenses and 8% planned to splurge. For those who spent the money, a common use was in the form of vacations. Given the many potential uses for silver, what are some of your options? One possibility is to add to your retirement nest egg. Every penny you save brings you closer to your retirement goals. Consider making contributions to the IRA. For those who qualify, a contribution of $6,000 can be made for 2022; those 50 or older can earn $7,000. The ability to contribute depends on your income level, whether or not you make other contributions to a retirement plan, and the type of IRA you choose. Another important point to consider is contributing to your workplace pension plan. The limit for 2022 is $20,500 ($27,000 if you are 50 or older). You could use the tax refund for living expenses, but increase your contributions to your employer’s pension plan. It’s basically an exchange of dollars, with the reimbursement for everyday use and the paycheck to advance 401(k) or 403(b) contributions. This is especially true if it helps you get a bigger chunk of matching employer contributions. If you are considering either of these options, be sure to discuss them with your financial advisor. Certain eligibility rules must be respected. Another use for a refund is to increase your or your child’s college fund. Think carefully about which savings vehicle to use. A Section 529 plan may be the ideal solution. Contributions to the Section 529 plan increase tax-free. If the money is withdrawn for eligible educational expenses, the withdrawal is also tax-free. If you are considering using a 529 plan, be sure to check your state’s rules on this. Some states offer tax benefits for contributions made. Another potential use of repayment is debt reduction. Some may want to pay off their mortgage. One consideration in doing so is the rate you pay on the mortgage. Paying it off faster allows you to build up equity in your home faster. If you have an attractive interest rate on the mortgage, it might make more sense to invest the yield if it can earn a higher rate than what you’re paying on your long-term mortgage. Keep in mind that if you pay off your mortgage, the mortgage interest tax deduction will be reduced. Be sure to plan for this when reviewing your taxes. Finally, once you have used the funds to pay off the mortgage, they are not available for other purposes such as investments or unexpected expenses. It might make more sense to pay off higher rate debt. Paying off higher-interest non-deductible debt, like credit cards, may have a greater long-term benefit. Without these debt payments in the future, you might have more flexibility with your finances. Something we dodged earlier is unexpected expenses. Your tax return can be the perfect time to start building an emergency fund. Another use is something not often considered: an investment in yourself. There may be courses or training programs you want to take to further your career. Taking the courses can increase your value in the workplace and your future earning potential. Finally, using your tax refund money is not an all-or-nothing proposition. Maybe part of the refund can be used for fun! Making a good decision is about looking at your choices and deciding which ones are best for you and your future.

Advice offered by Marc Hébert, president of The Harbor Group Inc., a certified financial planner. If you have questions about finances or if you want to suggest a future topic, email [email protected]

It’s hard to believe the number of income tax refunds the IRS processed for the 2020 tax year. It was over 128 million. In total, approximately $355.3 billion in tax payments were refunded to taxpayers. Reimbursement “found” money for some and provided money for others.

Let’s see how some 2020 taxpayers thought they could use the money. Of the recipients, 27% planned to use the money for existing expenses and 8% planned to splurge. For those who spent the money, a common use was in the form of vacations. Given the many potential uses for silver, what are some of your options?

One possibility is to add to your retirement nest egg. Every penny you save brings you closer to your retirement goals. Consider making contributions to the IRA. For those who qualify, a contribution of $6,000 can be made for 2022; those 50 or older can earn $7,000. The ability to contribute depends on your income level, whether or not you make other contributions to a retirement plan, and the type of IRA you choose.

Another important point to consider is contributing to your workplace pension plan. The limit for 2022 is $20,500 ($27,000 if you are 50 or older). You could use the tax refund for living expenses, but increase your contributions to your employer’s pension plan. It’s basically an exchange of dollars, with the reimbursement for everyday use and the paycheck to advance 401(k) or 403(b) contributions. This is especially true if it helps you get a bigger chunk of matching employer contributions. If you are considering either of these options, be sure to discuss them with your financial advisor. Certain eligibility rules must be respected.

Another use for a refund is to increase your or your child’s college fund. Think carefully about which savings vehicle to use. A Section 529 plan may be the ideal solution. Contributions to the Section 529 plan increase tax-free. If the money is withdrawn for eligible educational expenses, the withdrawal is also tax-free. If you are considering using a 529 plan, be sure to check your state’s rules on this. Some states offer tax benefits for contributions made.

Another potential use of repayment is debt reduction. Some may want to pay off their mortgage. One consideration in doing so is the rate you pay on the mortgage. Paying it off faster allows you to build up equity in your home faster. If you have an attractive interest rate on the mortgage, it might make more sense to invest the yield if it can earn a higher rate than what you’re paying on your long-term mortgage. Keep in mind that if you pay off your mortgage, the mortgage interest tax deduction will be reduced. Be sure to plan for this when reviewing your taxes. Finally, once you have used the funds to pay off the mortgage, they are not available for other purposes such as investments or unexpected expenses.

It might make more sense to pay off higher rate debt. Paying off higher-interest non-deductible debt, like credit cards, may have a greater long-term benefit. Without these debt payments in the future, you might have more flexibility with your finances.

Something we dodged earlier is unexpected expenses. Your tax return can be the perfect time to start building an emergency fund.

Another use is something not often considered: an investment in yourself. There may be courses or training programs you want to take to further your career. Taking the courses can increase your value in the workplace and your future earning potential.

Finally, using your tax refund money is not an all-or-nothing proposition. Maybe part of the refund can be used for fun! Making a good decision is about looking at your choices and deciding which ones are best for you and your future.