After putting aside a portion of your paycheck each month, you may be eager to receive your tax refund—after all, the average tax refund for Americans is around $3,000. While you can certainly use this money to go shopping, investing it may offer more benefits.
In this article, we’ll review five savvy ways to invest your tax return this year.
#1 Pay Down Your High-Interest Debt
If you have credit cards or loans with high-interest rates, you’re likely paying a lot to borrow that money. The average APR on a credit card is 16.28%.
You can mitigate your interest payments by paying off your high-interest debt as fast as possible. Simply use your tax refund to make a dent in your outstanding debt balance.
Another way to make your debt more affordable is by consolidating it with a low-interest personal loan. Simply use this loan to pay off all of your high-interest credit card balances. At North Jersey Federal Credit Union (NJFCU), for example, our debt consolidation NJ personal loans come with low rates and minimal fees.
#2 Set Up an Emergency Fund
If you’re already debt-free, you can stay that way in the future by establishing an emergency fund. Just deposit your tax refund into a dedicated savings account.
Having a healthy emergency fund can ensure you have cash on hand when you need it. This way, you won’t have to turn to costly credit cards to pay for unexpected:
- Car repairs
- Home repairs
- Medical treatments
- Job loss
Once you have an emergency fund in place, you’ll be financially ahead of a large portion of Americans. After all, less than 40% of Americans say they could afford an unexpected $1,000 expense.
#3 Create a Goal-Specific Savings Account
If you already have an abundant emergency fund, you can save your tax refund for other purposes. For example, maybe you want to save up for a family vacation or your holiday shopping list. Your tax refund can serve as the initial deposit in a goal-specific savings account.
At NJFCU, we make it easy for our members to save for these types of goals. For instance, our Vacation & Holiday Club Accounts allow you to:
- Set a specific savings goal
- Make deposits to your savings account using automatic transfers
- Adjust your recurring saving contributions as needed
- Earn dividends on your deposits
If you want to withdraw your money early, you can for a low fee. Otherwise, you’ll gain automatic access to your savings in the first week of July or October—just in time for a summer vacation or winter holiday.
#4 Contribute To Your Retirement Account
Thanks to the tax advantages, an individual retirement account (IRA) is another smart place to invest your tax refund. The money you contribute to your IRA can earn compound interest tax-free until you choose to withdraw it. Over time, these tax savings can really add up.
If you want to contribute your tax refund to your IRA, just keep in mind that you can’t exceed the IRS’s annual contribution limits. In 2023, these limits are as follows:
- $6,500 a year for people under 50
- $7,000 a year for people 50 or older
Note: If you invest your tax refund into your IRA, you won’t be able to withdraw it penalty-free until you’re 59½. Early IRA withdrawals are subject to a 10% tax penalty.
#5 Invest in the Stock Market
Many people successfully grow their wealth by investing in the stock market. While returns are never guaranteed, using your tax refund to purchase a few stocks, bonds, or mutual funds may pay off generously in the long term.
If you don’t feel confident selecting stocks on your own, you can always consult with a financial advisor or use a robo-advisor. Robo-advisors are automated investing services that manage your investment portfolio on your behalf using advanced algorithms. Unlike financial advisors, robo-advisors rarely require you to invest large amounts to get started.
Work With a Leading Credit Union New Jersey
As you can see, there are many ways to make your tax refund money work for you. By investing your money wisely, you can set yourself up for long-term financial success.
You can also improve your financial situation by banking with the right institution. Here at NJFCU, our members enjoy many perks, such as convenient ATMs, affordable interest rates, and low fees. As a not-for-profit financial cooperative, we’ve been putting the best interest of our members first since 1936.
Discover how you can become an NJFCU member today.