April Showers Bring Tax Refunds: 4 Ways Your Refund Can Benefit Your Financial Future
April tax time has many Americans expecting a refund and thinking about how they want to spend it. While it is tempting to spend it right away, saving it for a financial goal could be more beneficial in the long run.
Consider using your refund for one of the following:
Life’s unexpected moments
You never know what life will bring you, and there may be unexpected expenses in your near future. The extra cash from your tax refund could add a nice boost to your emergency savings fund. Ideally, an emergency fund should comprise six to nine months of your living expenses. However, if you’re just starting this type of fund, three months’ worth of expenses is a great goal.
Eliminating debt
Putting your refund toward debts like student loans, credit card bills or a mortgage can allow you to make a larger contribution to the overall amount. If you currently make multiple debt payments, you may want to earmark the money for the debt with the highest interest rate first.
An investment portfolio that reflects your values
Our recent Merrill Edge Report(1) found that many Americans desire to make a social impact with their investments. Fifty-seven percent of respondents reported currently investing in causes they care about, with environmental protection initiatives being one of the most common. With Earth Day this month, consider combining both your financial goals and personal values by investing in a portfolio that ranks highly for ESG (environmental, social and governance)(2) initiatives. To help you get started, Merrill offers tools to our clients that make it easy to select the investments that align with environmental, social and governance-related values.
Retirement savings
Allocating tax refund money to your retirement savings can provide a significant boost to your annual contributions. For example, consider establishing a traditional or Roth individual retirement account (IRA) and contributing your refund and/or up to $6,000/year if you’re under the age of 50, and up to $7,000 if over the age of 50.
No matter the size of your tax refund this year, contributing it to a financial goal can jump-start your progress and put you on the right track for a brighter financial future.
(1)For more information about the Merrill Edge Report, visit www.merrilledge.com/report Merrill Edge Survey Methodology: Convergys (an independent market research company) conducted a nationally representative, panel-sample online survey on behalf of Merrill Edge Sept. 27-Oct. 13, 2018. The survey consisted of 1,034 mass affluent respondents throughout the U.S. Respondents in the study were defined as aged 18 to 40 (Gen Z/Millennials) with investable assets between $50,000 and $250,000 or those aged 18 to 40 who have investable assets between $20,000 and $50,000 with an annual income of at least $50,000; or aged 41-plus with investable assets between $50,000 and $250,000. For this purpose, investable assets consist of the value of all cash, savings, mutual funds, CDs, IRAs, stocks, bonds and all other types of investments such as a 401(k), 403(B), and Roth IRA, but excluding primary home and other real estate investments. We conducted an oversampling of 300 mass affluents in Atlanta. The margin of error is +/- 3.1 percent for the national sample and about +/- 5.6 percent for the oversample market, reported at a 95 percent confidence level.
(2)Impact investing and/or environmental, social and governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. Further, ESG strategies may rely on certain values-based criteria to eliminate exposures found in similar strategies or broad market benchmarks, which could also result in relative investment performance deviating.
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