The average tax return so far this year is $3,034. If you are expecting a decent size tax refund, we’ve highlighted some of the benefits of using your tax refund to open a savings account for your child.
A Tax Refund Can Give Your Child a Head-Start
A tax refund gives parents the perfect financial opportunity to help jump-start a child’s savings account. Why? It reduces procrastination, explained Andrew Schrage of Money Crashers. “Lots of people put off starting a 529 savings account or an IRA for a child because they think they can’t afford it,” he said. “Using a tax refund to do so is one way to get around that obstacle.”
An Easy Way to Take Advantage of Tax Breaks
“Investors can use 529-plan earnings to pay for qualified higher education expenses without incurring federal tax or (in most cases) state income tax,” explained Betty Lochner, chair of the College Savings Plans Network.
Keith Klein, financial adviser and owner of Turning Pointe Wealth Management, said it’s imperative to start saving before your child is 10. Whether or not you use your tax refund, tax advantages for 529 college saving plans include a tax-free distribution for the child’s college costs, and can be used for college or K-12 expenses when it comes to educational IRAs, according to Klein.
Automatic Annual Savings
“The benefits to using tax refunds to set up a savings account is that it doesn’t come out of your monthly budget,” explained Bob Wheeler, CPA and CEO of RWWCPA.com. “It’s taking ‘free’ or unexpected money and using it for something useful,” Wheeler said. Taxpayers can adjust withholdings through their employer by changing their filing status or the number of allowances with IRS Form W-4.
Whether you are looking to start a traditional savings account for short-term savings goals or you’re looking for longer-term educational or retirement savings goals, your tax return will set you and your child on the road to a more financially secure future.
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