Put your tax refund to work

Long version

Most of us probably don’t enjoy preparing our taxes, but there’s often a reward at the end — a tax refund. If you get a refund this year, how can you make the best use of it?

Of course, the answer depends somewhat on the size of your refund. Last year, the average tax refund was $3,050, according to the Internal Revenue Service.

Whatever the size of your refund, though, you’ll want to maximize its benefit. Here are a few suggestions:

Contribute to your IRA. If you were to receive about $3,000, it would go a long way toward funding your IRA for the year — but any amount would help. You still have until April 15, 2025, to contribute to your IRA for the 2024 tax year, but if you’ve already “maxed out” on it, you could use your refund for 2025. The annual contribution limit for a traditional and Roth IRA remains $7,000, or $8,000 if you’re age 50 or older. And by getting an early start toward fully funding your IRA, you can reduce the pressure of having to come up with large amounts later in the year.
Build an emergency fund. Your tax refund could help you start or expand an emergency fund. It’s a good idea to keep up to six months’ worth of living expenses in such a fund, with the money kept in a liquid, low-risk account, separate from the funds you use for your daily expenses. You might need to draw on this fund for unexpected expenses, such as a major home or car repair or a medical bill that’s not fully covered by your health insurance. Without such an emergency fund in place, you might be forced to dip into your IRA or other retirement accounts to pay for these types of costs, and such a move could be expensive, resulting in taxes, penalties and lost opportunities for growth.
Contribute to a 529 plan. If you have children or grandchildren and you’d like to help them further their education someday, you might consider investing in a 529 education savings plan. With a 529 plan, earnings and withdrawals are federally tax free, provided the money is used for qualified education expenses. Based on where you live, your 529 plan may provide state tax benefits, too. (It is possible, though, that 529 withdrawals could affect financial aid packages, depending on who owns the account.) A 529 plan can be used to help pay for college, accredited trade school programs, some K-12 expenses and even to help repay some student loans.
Pay down debts. Your tax refund may give you a chance to reduce your debt load. But which debts should you tackle first? You could follow the “snowball” method by paying off the smallest of your loans or debts as quickly as possible. Or you could choose the “avalanche” route by making minimum payments on all debts and using extra funds — such as your tax refund — to pay off the debts that carry the highest interest rates. Either method could help you save money in the long term.

It’s not often that you receive a financial windfall such as a tax refund — so think carefully about how you can maximize its benefits.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
Edward Jones, Member SIPC

Number of words: 537

Short version (radio/print)

Word

PSA: Put your tax refund to work

TBA: Feb. 10, 2025

It’s that time of year when tax refunds are going out. If you get a refund this year, how can you make the best use of it?

The answer depends somewhat on the size of your refund. Last year, the average refund was $3,050, according to the Internal Revenue Service.

But regardless of how big your refund is, look for the ways it can help your financial situation.

For starters, you could use your refund to help fund your IRA. You still have until April 15, 2025, to contribute to your IRA for the 2024 tax year, but if you’ve already put in the full amount, you can start on 2025 contributions.

If you have children or grandchildren, you could use some of your refund to help fund a tax-advantaged 529 education savings plan.

Another possibility is to use the refund to pay down some of your debts. You could try to pay off the smallest debts as soon as possible or, alternatively, tackle the debts that carry the highest interest rates.

It’s not often that you receive a financial windfall like a tax refund — so think carefully about how you can maximize its benefits.

This content was provided by Edward Jones for use by (FA’s NAME), your Edward Jones financial advisor at (Branch address or phone #).

Member SIPC

Number of words: 195 (excluding FA’s name, address/phone number)