© 2022 Broadridge Financial Solutions, Inc.
This material was written and prepared by Broadridge Advisor Solutions.
Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. The content is derived from sources believed to be accurate. You are encouraged to seek guidance from an independent tax or legal professional. This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties.
COMPASS CARD BALANCE REFUND PROFESSIONAL
There is no assurance that working with a financial professional will improve investment results. Be sure to speak with your financial professional for guidance about the best way to proceed. Of course, you might want to use this year’s refund for another purpose. As an added potential benefit, the amount of any matching employer contributions may increase as a result. If you aren’t yet contributing the maximum, using this year’s refund to finance some routine household expenses could help you allocate more of your income to a workplace retirement account. The 2022 cap on contributions to 401(k) and 403(b) workplace retirement plans is $20,500 ($27,000 if age 50 or older). IRA contributions (up to $6,000 in 2022 $7,000 if age 50 or older) may be deductible, depending on your income and the type of IRA you choose. Using your refund to potentially bring retirement goals closer to reality might be prudent. Although that strategy may still limit your potential to pursue additional financial opportunities in the short term, your long-term savings may be significant. With that in mind, it may be better to pay off higher-interest, nondeductible debt first, such as credit-card bills and car loans. In addition, the reduction in your overall liquidity may limit your ability to make new purchases or investments that you hadn’t anticipated. However, using a refund to cut down mortgage debt ahead of schedule could have counterproductive consequences, including losing the ability to claim the home mortgage interest deduction when filing your income taxes. For example, a home mortgage is often the largest debt taxpayers carry, and making extra mortgage payments can reduce your principal balance and shorten the term of the loan, allowing you to accumulate equity faster.
3 While reducing debt can be the cornerstone of an effective financial strategy, it’s essential to avoid making choices that could set you back in the long run. Though spending your tax refund is tempting, most people surveyed said they planned to save their tax refund and/or pay down debt. Last year, 27% of consumers said they planned to spend their refund on everyday expenses, whereas equal numbers (8%) planned to either “splurge” or take a vacation. 1 For most recipients, such a sudden influx of cash prompts an important question: What’s the best way to use the money? The IRS issued more than 128 million income tax refunds for the 2020 filing season, putting $355.3 billion into the hands of U.S. Printed from: Splurge or Save? Making the Most of Your Income Tax Refund
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