Another view: Tips to successfully maximize or invest your tax return refund

Dereik Simpson, Financial Center Manager at Bank of America Amarillo

Tax Day is here, and millions of Americans have gone through their finances and filed their annual tax returns.

While tax-filing is admittedly no one’s favorite task – not to mention how overwhelming the various rules and regulations can often feel – this process presents the perfect opportunity to reexamine your finances.

If you receive a tax return refund, it’s easy to mindlessly spend your return since it feels like “extra money” that you didn’t have before. Instead of going on a spending binge, consider implementing smart savings and investment strategies to watch your money grow:

  • Invest your refund into a traditional or Roth IRA - This can be a great investment account option to help you prepare for your future retirement. A traditional IRA provides tax-deferred growth, which means your money grows tax-free until you begin taking distributions, at which point, your withdraws are taxed at your income tax rate. With a Roth IRA, you would be putting money that’s already been taxed into the account and you’ll take home the full amount federal tax-free when you’re ready to withdraw your contributions. The earlier you get started on your traditional or Roth IRA accounts, the more time your money will have to grow, setting you up for financial success when it comes time to retire.

  • Invest in your future self - As you receive your tax return this year, consider using it to invest in yourself. According to a Bank of America survey, Gen Z approaches investing with a “get rich” mindset. Instead of putting all your return into a savings account, consider setting aside a portion to invest in a new business venture to help drive an additional income stream. This could mean putting money towards the yoga classes you need to take to become an instructor, getting your cosmetics license or a real estate certificate. Investing in your future self is a safe and guaranteed investment.

  • Treat yourself, your tax refund can be “fun money” - Millennials are more likely to say investing is a “grown-up thing to do” (according to a Bank of America survey), but that doesn't mean you can't have fun while being responsible. While it's important to be mindful of how to spend your tax refund, you can also consider investing a portion of your refund towards projects and plans that will nourish your mind and body. For example, use a portion of your refund for the trip to Europe you’ve been wanting to take, or make the home improvements you need to your home.

  • Put your refund toward starting or adding to an emergency fund - It is recommended to save anywhere from three months to one year’s worth of living expenses – or whatever you can comfortably manage – to act as a financial cushion for life’s unexpected events. A savvy way to use your tax return can be making a significant contribution to build up these savings. Then, continue growing your emergency fund over time with regular contributions.

Dereik Simpson is Financial Center Manager at Bank of America Amarillo.

This article originally appeared on Amarillo Globe-News: Another view: Tips to successfully maximize or invest your tax return

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