10 Responsible Things to Do With Your Tax Return

Thank you to Ohio’s 529 for sponsoring this post. As always, all thoughts & opinions are my own 🙂

Hi, friends!

Given the current climate of our country due to COVID-19, I personally feel that this year, more than ever, it’s important to be smart about our spending, investing, and savings of our tax return.

The following are ideas of what to do with your federal tax return to be as responsible as possible and that would allow you to make some serious progress towards meeting your financial goals:

1.) BUILD YOUR EMERGENCY FUND – Now, more than ever before, it’s crucial that you strive to have 3-6 months of must-pay living expenses saved. These essentials include rent/mortgage and groceries. Lately, I just keep thinking about the saying, “Saving for a rainy day.” The rainy day is now, friends.

2.) PAY OFF DEBT – This includes mortgage, credit cards, car payments, and student loans! You will feel SO GOOD putting a large chunk of $ towards paying off these items!

3.) SAVE FOR RETIREMENT – If your company has a 401K, consider putting more in it – especially if they match you. Or, look into an IRA or Roth IRA as compound interest, over time, can give you a notably significant increase in your retirement savings!

4.) SAVE FOR COLLEGE – If you have little ones, like we do, college savings can be extremely overwhelming. My advice? Start now! Ohio’s 529 savings plan is an excellent option that offers way more savings potential than a traditional savings account.

For example, in 17 years, 4-year in-state tuition and fees might cost $115,000. If you plug the average federal tax refund for Ohioans – let’s say $2,539, which was the average for Ohioans in the 2018 tax year – into College Advantage’s College Savings Planner for 17 years, you’re projected* to be able to cover 79 percent of tuition and fees by investing that refund in Ohio’s tax-free 529 plan, versus only 38 percent of tuition and fees if deposited into an everyday taxable bank account.

*Assumes growth rate of 6% in the 529 plan and a bank savings interest rate of .09% as reported by the Federal Reserve Bank of St. Louis 1/2020. Also important to note that this is only a projection, and individual results could be lower or higher, much like mutual funds in a 401K plan.

While debt from student loans is inevitable for a lot of families, saving in a 529 plan is a great way to offset how much debt you’ll end up with at the end. If your child started kindergarten this year, you have more time to save (and build tax-free earnings) and benefit from the power of compound interest. If your child is in middle or high school, you may want to accelerate your savings. Even if your child is in college already, you can still save and take advantage of tax-free earnings (which helps you save even more). And, no matter when you start saving, you can deduct up to $4,000 per year per beneficiary from your taxable Ohio state income.

5.) INVEST – We use a financial advisor who helps us determine which stocks and mutual funds are doing best and I can’t recommend one enough if you are not sure where/how/when to invest.

6.) CHRISTMAS SAVINGS – You could essentially save for your entire Christmas expenses with your return! That would be life-changing come December!

7.) HOME ESSENTIALS – Upgrade those home essentials that will increase the energy efficiency of your home, such as the A/C unit, hot water heater, or windows.

8.) HOME VALUE ITEMS – Investing in items that will overall increase the value of your home, such as wood floors, carpeting, bathroom/kitchen upgrades, etc. could be a wise choice, especially if you’re planning on selling soon.

9.) SAVE FOR AN EXPERIENCE – Let’s face it: We all need a break and something to look forward to sometimes. If saving your tax return for your vacation makes you happy, go for it! Actually, research shows spending our money on experiences vs. things actually makes us happier.

10.) INVEST IN YOURSELF – Have you been wanting to go to that professional conference, take that class, or training? Want to get into blogging and photography? You may want a nice camera! Invest in yourself either personally, or professionally, or both, and you won’t regret it!

There you have it! How do you plan to spend your tax return?

Ohio’s 529 has graciously offered one lucky Girl About Columbus reader to win a $250 contribution to open a 529 plan! Woohoo! Head over to my Instagram to the details on how to enter to win.

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