How to Use Your Refund
While we understand that many California families use their tax refund to pay existing bills and pay down debt, investing in savings and your future can be extremely helpful in achieving financial security. Even a small amount of money can go a long way when invested wisely! Below are six simple ways to get on the right path to achieving financial success.
Pay off Bills or Debt
For many of our clients, bills and debt is the first thing that they plan to tackle with their tax refund. With the rising costs of living it isn’t surprising that many use this extra cash to catch up.
If you’re paying off credit cards, we suggest starting with the credit card that has the highest interest rate. You can find your interest rate by looking at your monthly statement.
If you’re looking to lower your monthly utility payments see if you might be eligible for utility assistance by going through our Benefits calculator. Text the word BENEFITS to 211-211.
Save for an Emergency
A savings fund is great to have when an unexpected emergency comes up. Are you still stashing cash away in a piggy bank at home? Think about opening a savings account, where your money has the opportunity to earn interest.
This is a double win when it comes time for tax time next year. Interest earned in savings account can count towards your earned income, which can help you qualify for tax credits like the CalEITC and EITC which both require at least $1 in earned income.
Buy a Savings Bond
For as little as $50, you can buy a U.S. Savings Bond and start saving for your family’s future.
- Savings bonds can help you by setting aside money for emergencies, or to get closer to your goal to buy a home, pay for education, or save for retirement.
- You can buy bonds in someone else’s name to give as gifts and help your loved ones reach their dreams.
- To buy a savings bond, check the box on the paper or online tax form and indicate the amount of the savings bond(s) you want to buy. If you are filing a paper return, use IRS Form 8888.
- Watch your mailbox: You will get your savings bonds in the mail 3 to 5 weeks after you receive your tax refund. Learn more about buying savings bonds with your tax refund.
Save for College
With the rising costs of higher education, it is never too late to start saving for your children’s educational future.
Traditional savings accounts can earn you interest at low rates, which is why we recommend opening up a College Savings Account or a 529 account if you’re hoping to save for college. Money from these accounts can be used towards any expense that helps you or your child move closer to graduation. This includes tuition, housing, supplies like books and laptops, parking passes or even meal plans.
For as little as $25, you can begin to invest in your children’s college education thanks to ScholarShare, California’s 529 College Savings Plan. In addition, many local cities have their own matching programs to help you start saving. Open a College Savings Account with ScholarShare today.
Scheduled to launch in July 2022, CalKIDS will also automatically provide newborns with up to $100 in the form of a seed deposit and additional financial incentives and eligible low-income public school children in first through 12th grade with $500 to support their pursuit of a higher education. Further, CalKIDS will provide an additional $500 to foster or homeless students. For more details about the program, please visit CalKIDS.org.
Save for Retirement
Saving for retirement is an essential part of ensuring you are set up for life after 65. Many retirees say that social security benefits aren’t enough anymore, so having additional money in a retirement account will ensure that you can continue to have money for all your essential needs.
If possible, it is always a good idea to set aside some savings for retirement. Retirement savings are favored by tax policy — you are not taxed on your contributions to your retirement for most plan types, which means you can put aside more than the amount your take-home pay will be reduced, and they can grow and compound free of taxes until you withdraw them.
Options include setting up your own Individual Retirement Account (IRA), participating in a retirement plan sponsored by your employer (a 401K or 403B) plan, or participating in a government-backed plan. (If you have access to a retirement plan sponsored by your employer, they may match a portion of your contribution, so be sure to look into that.) For people who don’t have a retirement savings plan through their work, or lack other options for saving, the federal government has launched a no-fee myRA program.
CalSavers is a California state sponsored retirement plan that is available to those who don’t qualify for a workplace retirement plan. To qualify for an account you must meet the following requirements:
- You are employed in the state of California.
- You are 18 or older.
- You have a Social Security Number or an Individual Taxpayer Identification Number.
Save for Disability Related Expenses
Get help paying for disability related expenses by opening up a CalABLE account. CalABLE allows you to save up to $16,000 a year without affecting your disability benefits. Best of all, earnings on qualified withdrawals from a CalABLE account are federal and California state tax-free.
Money is available through both an account or a prepaid card making spending easy and convenient. There are a wide range of things you can use the money for including:
- Education Expenses (tuition, books, supplies)
- Housing (rent or mortgage payments, utilities, home improvements or modifications or property taxes)
- Transportation (purchase of vehicle, bus passes, alternation of a vehicle and moving expenses)
- Employment Support (job related training, benefits planning)
- Health, Prevention, Wellness (premiums for health insurance, medical expenses, rehabilitation, therapy, personal assistance)
- Assistive Technology (Cost of assistive technology and personal support communication devices, adaptive equipment)
- Miscellaneous (financial management, legal fees, funeral expenses)