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April showers are starting to fall, and tax season is drawing to a close. Have you decided what to do with your tax refund? Savvy planners understand that it is time to take that money and have it start working for you.
There are many choices of where to put your money to get the best returns, the biggest tax breaks, and those all important savings for this year and future years.
Save with Tax Filling and Refunds
When filing your taxes, you have the choice to deposit the money into multiple accounts. IRS form 8888 can be filled out to direct your refund to as many as three different accounts. Simply placing some of the money into a savings account, as opposed to all into your checking account, can help keep you from spending it too rapidly. Better choices include depositing funds into an IRA or Roth IRA, opening a MyRA, and purchasing savings bonds. This would use your money to prepare you for retirement. The earlier you start saving, the better. Money invested and saved during your younger years can add up to a nice, large nest egg for your retirement. Unleash the power of accrued interest in your favor!
IRA, Roth IRA, MyRA, and Saving Bonds
An IRA, Individual Retirement Account, is a pre-tax retirement savings account that once it matures is then eligible for taxation. A Roth IRA is a post-tax retirement account where the taxes have been paid on the money before being put into it. No more than $5500 a year can be placed into a Traditional IRA or Roth IRA. The contribution limit is raised to $6500 for those of age 50 or older. After the year is over you still have until April 15th to put money into an IRA or Roth IRA, as long as you have not exceeded the maximum allowed contribution, for that tax year.
MyRAs are new for the 2015 tax year. Introduced as a way to supplement Social Security benefits, only $25 is needed to open a MyRA, and a continued $5 in payroll deductions. It is also limited like IRA’s and Roth IRA’s to only $5500 per year or $6500 for those 50 and older. Once the account has $15,000, or after thirty years, it has to be rolled into a private IRA. This is an excellent option for households making less than $191,000 a year. It starts the process of saving for retirement while keeping the pay-in at a minimum.
Up to $5,000 of your refund can be used to purchase between one and three paper series I savings bonds. The interest rate for I savings bonds is adjusted annually for inflation. The interest is added monthly and is paid to the holder when the bond is cashed. Savings bonds will continue to accrue interest for up to thirty years. Three months of interest is forfeited if the bond is cashed in after less than five years. Savings bonds can be purchased for as little as $50, increasing in increments of $50.
Planning for the Next Tax Year
A little set aside for the future can make a big difference in your golden years. It’s never too late to improve your savings plan, even for those of us who are getting close to retirement and planning a move to warm and sunny Florida. The kind of services CPA Orlando offers can help you plan for next year’s tax season. The tax laws are always in flux, and a CPA can help determine which IRA works best for you, or if the safe investment in savings bonds makes the most sense to your situation. With the right help, you could spend your retirement relaxing on a beautiful beach in Orlando.