With the IRS’ e-file open, have you filed your taxes and are expecting a refund any day now? Well, good news: taxpayers whose returns have been accepted and are expecting a refund should be receiving it within 21 days.
This means that those who are receiving their tax refunds may be evaluating what the best use of it may be or how to spend their tax refund. When faced with the question, many people choose to purchase household necessities, pay down debt, or make more money by saving and investing their refund.
In the last few years, we’ve seen a dramatic shift in people making money with their refunds by saving and investing. In this article, we explore several types of investments and offer a few helpful money-smart ideas for you to consider for this year’s refund.
Short-Term Saving and Investing
There are various types of short-term investments and savings options to consider to make money passively. Something to consider for these investments is that any account you place your money into should be FDIC-Insured. This means if the bank were to default or suffer a loss, your money is guaranteed and not lost. Here are the most popular accounts:
- Traditional Savings Accounts – the lowest risk and lowest reward account of all your options.
- High Yield Savings Accounts – this account type has the least risk, but usually a lower return.
- Certificate of Deposit (CD) – this type of account require you to “lock” your money into the account and not access it. These accounts provide higher interest rates (how you make money) based on the size of the deposit and length of your CD. There are variations of this type of account, so we suggest speaking with a financial advisor or banking institution to find which type works best for your situation.
- High Yield Money Market Account – take the higher yield advantages of the CD, but maintain the ability to retrieve your money, up to six times per month if needed, is the basis of a money market account. The risk here is that your variable interest rate can fluctuate based on the amount of your deposit and the economic market.
Long-Term Saving and Investing
Long-term investments require a more focused effort, and we suggest a financial advisor for guidance and help in making specific decisions. Here’s an overview of a few traditional account types to consider:
- 401(k) & Pensions – These will be traditional retirement accounts that can benefit you come tax time. If you qualify through your employer, you’ll want to speak with your Human Resources or Benefits department for specifics.
- IRAs – IRAs, or Individual Retirement Accounts, come in different types based on both the needs of the account holder, and a few tax benefits based on the type. They’re primarily made of various mutual funds or market accounts, but usually designed for long-term earnings. Here’s an overview of the two most popular types:
- Traditional – This type offers a deduction based on the amount you put in up-to a certain limit. The money in the account is non-taxable until you begin taking it out.
- Roth – A Roth IRA allows the account holder to place money into the account tax-free, and under current laws, not pay for earning made on the account.
- Stocks, Bonds, and Mutual Funds – These are the riskiest of the long-term investment strategies. There are many different approaches you can take to investing in stocks, bonds, and mutual funds, and we advise you to consult a financial planner before buying or selling any type of market product. However, most successful investors will tell you a healthy mix of the three are staples in their investment portfolios.
No matter what investment type you decide to save with, make sure you know the tax implications of that type. If you want more help with investing and taxes, eSmart Tax provides wonderful resources on The Daily Deduction all year long. If you enjoyed this article or found it helpful, Like us on Facebook and follow us on Twitter to get more articles like this posted directly to your timeline or newsfeed! You can also share this stress-relieving info with your social network or friends by clicking on the share buttons above or below.