Okay, so you put TurboTax or H&R Block Online to work and got a fat tax refund this year. What are you going to do with it? If you overpaid your taxes last year, let’s face it – that was money you managed to live without for a full year so why not invest it? Under the right conditions, investing your tax refund is one of the wisest things you can do with that windfall.
I once heard a very wise financial advisor say that investing was like sending money to your future self and I like that thought process. But before you jump headlong into the investment world, make sure you’ve:
Great places to stash your tax refund
Open a brokerage account and begin investing into a Roth IRA (if you qualify). Since Roth IRA’s are funded with after tax dollars, both their principle and their interest can be withdrawn tax free once you reach retirement age. Then, once you fund your Roth, check out Allen Roth’s great book, How A Second Grader Beats Wall Street and direct your money into broad based index funds or Exchange Traded Funds (ETFs).
The brokerage accounts I recommend are:
Once you’ve opened and funded your brokerage account, there are a host of options available. You can:
The main key is to give yourself the opportunity to invest. Without that brokerage account set up and funded, you are just daydreaming.
Another great place to stash your money is in a Certificate of Deposit (CD) from EverBank. CDs from EverBank feature their highest fixed rate for a fixed amount of time – you are only locked in as long as you specify. There is a relatively low minimum deposit to open so if your tax refund wasn’t so “fat” you aren’t left out. Additionally, EverBank promises to keep the yield on your account in the top 5% of Competitive Accounts as measured the last Wednesday of each month in Bankrate Monitor’s National Index, a weekly national survey of rate information surveyed by Bankrate.com.
An important consideration going forward
If you’re getting a small refund, no big deal. But if you’re consistently getting large refunds, you should consider altering your tax withholding so you can put that money to use sooner. Just make sure you don’t spend it!