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How to Use Your Tax Refund to Boost Your Retirement Savings

    What would you do if you had over $3,000 in your bank account? Isn’t that a lot? If your tax refund is anything like the typical direct deposit tax refund from the previous year, you should anticipate to get a little more than $3,000 in your refund. So, when the money arrives, what should you do with it?

    Contributing to your retirement account is the smartest thing you can do because it has the greatest long-term impact. The sooner you make that decision, the better, because the money will grow tax-deferred or tax-free for many years.

    Here are some tips on how to do that:

    1. Ask your company to temporarily increase your monthly payments by an even amount up to your whole tax refund if you have a 401(k) or 403(b) plan through your workplace that permits you to contribute to your retirement account and you haven’t been contributing the maximum. Those additional contributions will be withdrawn from your paychecks, resulting in lower paychecks each payday, but your tax refund will offset the additional amount deducted and contributed to your retirement account. You will also reduce your taxable income because contributions to your 401(k) or 403(b) retirement plan are tax-deferred. This technique can be used for the rest of the year until your tax refund is depleted and your retirement account grows. It’s even better if your employer matches your donations. Isn’t it some shrewd planning? In 2022, the maximum amount you can put into an employer-sponsored retirement account such as a 401(k) or 403(b) is $20,500 ($27,000 if you’re 50 or older).
    2. If you have earned income and are already contributing the maximum amount to your 401(k) or don’t have access to one through your employer, you can likely contribute to another type of retirement account such as an IRA. You may be able to donate up to $6,000 ($7,000 for those 50 and older), and you may be able to deduct the contribution from your taxes if you contribute to a traditional IRA. Although you won’t be able to deduct your contributions to a Roth IRA, it’s still a good idea to invest in one because the money will grow tax-free indefinitely and you won’t be taxed on your distributions when you retire.
    3. Even if you don’t have earned income because you’re retired or unemployed, you can put money down for retirement even if it’s not in a tax-deferred retirement plan. Just make sure they’re in a separate account that you don’t worry about when you’re planning your next purchase. Please repeat after me: these money are for retirement; they are not currently available to me.

    While saving for retirement, you may be eligible for a $1,000 single Saver’s Credit ($2,000 married filing jointly) at tax time simply for investing in your future.

    All saving and no spending might be exhausting, so if that’s how my advise is hitting you, set away a portion of your tax refund to spend however you like. Spending 10% of your refund while saving 90% will keep your mood upbeat while increasing your retirement funds. It’s like having the best of both worlds! These are just a few instances of how a tax refund might aid in the growth of your retirement.

    Don’t sweat it if you don’t understand the tax laws. TurboTax will ask you a few easy questions and then calculate the tax deductions and credits you qualify for based on your responses. If you have any questions, you can connect to a TurboTax Live tax expert by one-way video and get your tax questions answered from the comfort of your own home. Year-round, TurboTax Live tax specialists are available in English and Spanish to review, sign, and file your tax return, or you can just hand over all of your taxes to them from the comfort of your own home.

    Learn more: Self-Employed Tax Tips & Summer Jobs