Save Your Tax Refund

Save Your Tax Refund
 

January 19, 2017

Everyone starts getting excited about the prospect of a tax refund this time of year, and you’re probably no exception. However, due to the holiday season you may have seen your savings dip a bit. Your tax refund may be a great opportunity to build those savings back up by committing now to save a portion of your tax refund this year.

You can choose to split and save a portion of your refund using IRS Form 8888.  The tax refund you save can then be placed into any of the following accounts:

  • Savings Account (great option if you already have a savings account at any bank, credit union, or other financial institution).
      - Typically used for funds that you wish to remain easily available in case
         of need in the short term. They are safe and low-risk, with small gains
         in the form of accrued interest. Deposits are insured by the federal
         government.
  • US Savings Bonds (great option if you don't have a savings account or the account information, or if you want to give the gift of savings to a family member).
       - You can choose to purchase U.S. Series|Savings Bonds using part of your
          refund. Savings bonds have no fees and have safeguards to protect
          from changes in the economy. And start at $50. They are mailed to
          buyers after tax returns are processed.
       - Savings bonds are giftable! You can buy them as a gift for a loved one
          simply by entering their name on Form 8888.
  • myRA or Individual Retirement Account (IRA) (this is a good option if you do not have access to an employer sponsored retirement account, such as a 401K).
        - MyRA is a government sponsored no-fee "starter" retirement account.
  • 529 Account (if you have already opened a 529 for your child and wish to add your savings for their education is a good option).
        - A 529 is designed to make it easier for people to save for their child's
          education. Funds are invested and the accounts have a special tax
          advantages: earnings are not subject to tax as long as they are used to
          pay for qualifying educational expenses.
       - A tax refund may be used to contribute to an existing 529 account.
  • Certificate of Deposit (this option is worth consideration if you want to lock away your savings for future use).
        - A certificate of deposit (CD) is a savings vehicle offered by a financial
           institution. Much like savings accounts, funds are federally insured.
           CDs typically have withdrawal restrictions - meaning savers cannot
           access the money as easily - but may offer slightly higher interest rates
           compared to traditional savings accounts.
  • Prepaid Card (this may be a good option if you do not have a savings account).
        - A prepaid card (or prepaid debit card) is a product that someone can
           "load" money onto and then spend directly from the card. It is NOT
           connected to a bank account. Many prepaid cards offer a saving
           "pocket" that allows them to set aside funds they do not wish to spend
           immediately.
        - It is important to review the costs and fees associated with prepaid
          cards to ensure they are the right choice.

 

Summary of Savings Options:

 

Savings Account

U.S. Savings Bond

myRA or Individual Retirement Account (IRA)

529 Account

Certificate of Deposit (CD)

Prepaid Card

No need for existing account

 

X

 

 

 

 

Easy to access savings after deposit is made

X

 

 

 

 

X

Higher return of account deposit

 

 

X

X

X

 

Giftable

X

 

 

 

 

 

 

Content provided by: Lisette D. Alverio
Financial Coach - CFPB Financial Coaching Program
Contractor - Armed Forces Services Corporation
Workforce Solutions of Concho Valley

 

Content editors: Mary Cooksey,
2-1-1 Texas A Call for Help