Hopefully, after working hard to crush your tax debt by making smart spending and saving decisions this year, you were left with a tidy tax refund in April.
Now all you have to do is decide what to do with the cash you received, and since you're retired, it's more important than ever to ensure you get the most out of every dollar. After all, how you choose to spend (or not spend) your lump-sum refund can greatly impact your financial situation in retirement.
Keep reading to learn about some key strategic money moves you can make with this year's tax refund that will help you continue to enjoy a stress-free retirement.
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Contribute to an IRA or Roth IRA
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Even once you've left the workforce, you can continue to make pre-tax contributions to a traditional IRA and post-tax contributions to a Roth IRA.
This investment strategy can help ensure you have access to an ongoing retirement savings fund even when you no longer have an employer to match your retirement account contributions.
Pay down high-interest debt
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Paying off high-interest debt is even more complicated once you've left the workforce and no longer have a stable source of income.
Using your tax refund to pay off any high-interest credit card debt or personal loans is a great way to both reduce your financial stress and free up more of your income for future expenses.
Boost your emergency fund
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Having an emergency fund does more than cover your expenses in a crisis. It also gives you the peace of mind that only comes from knowing you'll remain financially stable no matter what unexpected problems the future has in store.
Resolve $10,000 or more of your debt
Credit card debt is suffocating. It constantly weighs on your mind and controls every choice you make. You can end up emotionally and even physically drained from it. And even though you make regular payments, it feels like you can never make any progress because of the interest.
National Debt Relief could help you resolve your credit card debt with an affordable plan that works for you. Just tell them your situation, then find out your debt relief options.1 <p>Clients who are able to stay with the program and get all their debt settled realize approximate savings of 46% before fees, or 25% including our fees, over 12 to 48 months. All claims are based on enrolled debts. Not all debts are eligible for enrollment. Not all clients complete our program for various reasons, including their ability to save sufficient funds. Estimates based on prior results, which will vary based on specific circumstances. We do not guarantee that your debts will be lowered by a specific amount or percentage or that you will be debt-free within a specific period of time. We do not assume consumer debt, make monthly payments to creditors or provide tax, bankruptcy, accounting or legal advice or credit repair services. Not available in all states. Please contact a tax professional to discuss tax consequences of settlement. Please consult with a bankruptcy attorney for more information on bankruptcy. Depending on your state, we may be available to recommend a local tax professional and/or bankruptcy attorney. Read and understand all program materials prior to enrollment, including potential adverse impact on credit rating.</p>
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If you're too young for Medicare, invest in a health savings account (HSA)
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If you've officially retired but aren't yet old enough to enroll in Medicare, you can continue contributing to a tax-advantaged health savings account (HSA). There are a few caveats, such as being on a qualifying high-deductible insurance plan. However, since you can withdraw funds from an HSA indefinitely, investing in one before you're enrolled in Medicare could be a good idea if you anticipate retirement health expenses.
The insurance requirements and contribution rules surrounding HSAs can be a little complicated, and investing in one might not be the best tax strategy for you, depending on how close you are to enrolling in Medicare. A retirement planner can help you understand if an HSA is a smart choice for you right now.
Make home improvements
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Whether you plan to sell your home and downsize later in retirement or hope to age in place, there's a lot of value in investing in necessary home upgrades. Consider making energy-efficiency upgrades that can boost your home's value and help you save money, or consider the updates you need to make your home safe for aging seniors over the next few decades.
Either way, using your tax refund to make necessary improvements is an excellent investment in your home's future.
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Donate to charities or causes
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Donating money to your favorite charity can help you feel good about giving back. Plus, if you donate strategically, you can also set yourself up for helpful tax deductions that will come into play next year.
Invest in a service that helps you free up time
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Now that you no longer work, you hopefully have more free time to spend with friends and family, but there are probably still unpleasant tasks that stop you from making the most of your time.
For instance, cleaning your home can take up your time and become more physically challenging as you age. Investing your tax refund in a cleaning or cooking service can give you more time to spend the rest of your life doing things you love with the people you love.
Take the vacation you've always dreamed about
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When you were working, what vacation would you take if you just had the time and money? While saving your money and spending it strategically should be at the top of your mind when you get your tax refund back, ensuring your retirement lives up to the dreams you spent your working life trying to bring to fruition is essential.
If your debts are paid off, you're happy with your savings fund, and you're not worrying about everyday expenses, it's worth considering putting some of your tax refund toward funding your trip of a lifetime. Whether you want a tropical cruise, a week in Hawaii, or a road trip to all 50 states, using your tax refund correctly can help you avoid spending your retirement deferring your dreams.
Bottom line
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Once you've retired, it's crucial to avoid money mistakes that could compromise your savings. Making smart, strategic choices about using your tax refund is one key way to ensure your savings last for the rest of your life.
And if you have further questions about how to make the most of this year's refund, don't hesitate to talk to a retirement planner or financial advisor — they can give you even more ideas about how to put your tax refund to work right away.
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