Think of what you’ve done with your tax refunds in the past. If none of them went towards something that’s earning you income right now, this year might be the perfect time to start investing that refund.
Will you be able to buy tons of shares of stock or purchase a rental property with your refund? Probably not. But you can get into certain investments that will get your money working for you instead of the other way around.
Here are some popular options:
Tax-Sheltered Retirement Accounts
Even if you want to work forever, you probably won’t be able to. That’s why it’s crucial to start saving towards retirement before it’s too late.
If you have a 401(k) or SIMPLE IRA through your employer, max out your contributions. If your employer matches them, you’re basically getting free money towards your retirement.
Even if you don’t have any such accounts through your employer, it’s a good idea to open your own IRA or Roth IRA since they offer tax advantages.
Tax-Sheltered Education Accounts
Has it always been your goal to put your kids through college? If so, you can use some of your tax refund and put it towards that goal with a tax-sheltered education account.
529 plans and education savings accounts are your main options here. Each has its own tax benefits, so be sure to read the fine print before picking one.
We move from the tax-sheltered to the taxable with this investment option. While you’ll be taxed on brokerage accounts, they offer the benefit of easier (and less costly) access to your money, should you need it for something else.
Another benefit of a brokerage account versus a tax-sheltered one is fewer restrictions on your annual contributions. This gives you more of an opportunity to build wealth without limits.
While you may think you need a ton of cash to start a brokerage account, you can do so with less than $1,000. In fact, you can even get into the game with as little as $50, so it’s a good idea to diversify and get started with some of that refund money.
Speaking of diversification, look into index or mutual funds with your brokerage account. Both allow you to spread your investment amongst several stocks with ease.
Passive Income Options
True independence comes via passive income. Once you have enough of it, you can retire without worry, as it will replace your job’s income.
Here are some examples of passive income where you can put some of your tax refund:
- Real estate
The idea is to invest your money once and let it grow. If you’re lucky, it will grow for many years, allowing you to build serious wealth in the process.
As with any other investment options on this list, be sure to do your homework before committing to anything. The more informed you are, the better.