Our insurance professionals share three insights on the best use of a tax refund.
Those mustard-yellow envelopes from the Treasury Department are showing up in mailboxes (or as a line on your account statement if you selected direct deposit). The IRS estimates that 8 out of every 10 Americans receive a tax refund from the government*, large or small.
We’re all eager to have a few extra dollars in our pocket to spend on something new and shiny on wheels, a much-needed vacation, or the latest electronic gadget to impress the neighbors. But, hold on! Is there a better way? What would someone with a career in the financial services industry do with tax refund dollars?
Catholic United asked a panel of our insurance professionals this question. Our panelists were different ages, experience levels and are from both rural and urban areas:
Sara Bartosh, FIC – serves Worthington, Fairmont and nearby
Gary Gall, FIC – serves St. Cloud area
Dan Markell, FIC – serves Marshall and nearby
Jim Suek, FICF – serves north and northeast suburbs of Minneapolis
Dean Warta, FIC – serves New Ulm area
The panelists provided us with three great suggestions.
1. Save for retirement. This was the number one suggestion from our panelists by far. They all agreed that “paying yourself first” by saving all or a portion of your return is the best strategy. “Tax refunds are a great way to fund retirement accounts” was a common sentiment, and “Committing even a portion of a tax refund to your retirement savings is better than spending every single dime.” was another tidbit they wanted to communicate.
Bartosh, who serves many rural families in the southwestern corner of Minnesota, encouraged people to consider contributing their refund to the security of a Roth IRA or traditional IRA, based on their tax situation. “You worked hard for your return. It is your money. You wouldn’t want to lose it,” advised Bartosh.
Markell pointed out that the products in Catholic United’s portfolio protect retirement savings from stock market risk, which means less financial worries when the market hits a peak or drops into a valley. Warta emphasized that Catholic United can safeguard savings without sacrificing growth in a Bonus Plus Annuity with a three percent annual percentage yield for the first year.**
2. Pay down debt – Suek encouraged people to review any high-interest debt they may have and use their return to pay it down. “A tax return may be a good opportunity to pay down high interest debt, such as credit card debt or outstanding loans,” said Suek.
3. Save for final expenses – It’s something that everyone will wind up paying at some point in time, but not everyone plans for it: funeral expenses. Gary Gall regularly assists his clients in setting up and funding pre-need burial plans. He even partners with local funeral directors selected by his clients. “Use your tax refund to start the plan and then contribute to it every year. It can be funded by the time you retire,” said Gall.
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**Annual Payment Yield, subject to change on an annual basis after first year, lifetime minimum guaranteed rate of 1.5%. Minimum deposit required. Maximum issue age is 85. $400,000 maximum deposit per household. **Federal & state penalties may apply. Withdrawals prior to age 59 1/2 will be subject to government penalties. On a Bonus Plus annuity, there is a 7-year surrender period (7%, 6%, 5%, 4%, 3%, 2%, 1%). Form 11A-1.
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