Have you received a significant amount as tax refund? Instead of using this amount for your daily expenses or for any other purposes, you can use it wisely in order to build a better financial future. Here are 5 ways by which you can use the amount you've received as tax refund.
1. Reduce your credit card balance - One of the best ways to use your tax credit refund is to pay off your credit card balances. Even if it's not possible to pay it off entirely, try to reduce the balance amount as much as possible. Doing so, you can save a lot of money which you otherwise need to pay as interest.
2. Purchase insurance if required - By buying adequate insurance coverage, you can protect your financial footing that has taken years to build. So, if required, discuss with an insurance agent whether or not there are any gaps in your insurance coverage. If required, purchase suitable policies to fill the gaps in your insurance coverage. You can also consider purchasing insurance riders, if required.
3. Contribute to your retirement fund - You can use your tax refund to contribute to your Roth IRA (Individual Retirement Account). You can contribute up to $5,000 ($6,500 if you're 50 years or more) if your modified gross income is $114,000 - $129,000 or less and you're single. However, you are also eligible to contribute if your modified gross income is $181,000 - $191,000, if you're married and filing jointly.
4. Make your house energy efficient - The amount can also be used to make your house energy efficient. This will help you increase the value of your house significantly. You can replace your incandescent lightbulbs with CFLs (Compact Fluorescent Lamps). By doing so, you can save on your electricity bills. You can also replace your old windows with energy-efficient models or weather stripping windows. Do you know that you're also eligible to get Federal Tax incentives by making your home energy efficient? It includes improvements of doors, windows and insulation along with upgradation of air-conditioning or heating appliances.
5. Build for college savings - Contributing to a 529 account is also a wise way to utilize your tax refund. It is actually an education savings plan which is operated by a state or educational institution so that the families can set aside an amount for future college expenses. This plan is named after Section 529 of the Internal Revenue Code that created such savings plan in the year 1996.
6. Donate to a charitable organization - You can also donate the amount to a charitable organization. By doing so, you will also become eligible to get tax credit the next year. However, before donating to a charitable organization, check out whether it's a reliable organization and you should get an itemized receipt so that you can claim tax credit when filing your income tax return.
Another most important thing which you should consider is to rebuild your emergency fund. Emergency fund helps you overcome your financial crises without having to fall into debt. So, if you've used your emergency fund in the recent past, then you can use your tax refund to rebuild it. It is advisable that you try your best to rebuild an emergency fund as soon as you use it for other purposes. This habit may help you avoid falling into debt problems, throughout your life.