We’re going to ask you to do something hard. We’re going to ask you to not spend your 2018 tax refund on a new car, a vacation or the latest electronic gadget. We’re going to advise you to try something else. At this time next year, you’ll be glad you did. There are ways to use that tax refund to potentially reduce your 2019 tax footprint and realize a larger return. Since the trend is that Americans are receiving smaller refunds due to the new tax laws — about 3% less on average according to the IRS[i] – examining your tax options is a good idea. Consult your tax advisor with questions about these suggestions and how they may apply to your specific situation.[ii] 
You’re ready to plan for next year, and you’ve got your 2018 tax refund in hand. Sales Representative Mike Ferrell of Watertown, SD, recommends using some or all of your tax return to fund an existing IRA or open a new IRA[iii]. “By putting that money into an IRA, you begin the tax-deferred growth on the money immediately, which helps your IRA grow faster. If you fund your IRA now you don’t have to figure out how to come up with that money next year at this time when you’re doing your taxes.” Ferrell admits that this is not as fun as a shopping spree, but if you take steps now, you might have more money to play around with next year. “It may be a way to minimize the impact of taxes next year and help you fund your IRA so you don’t have to put a strain on your cash flow in 2020.”
Jim Suek, our Sales Representative serving north Minneapolis, encourages people to resist the urge to spend the return on frivolous fun and instead take active steps to save.
“When you use your refund to start or fund a Roth IRA account, the benefits are twofold. You’re doing something to help secure a financial future, and you might be able to enjoy that special purchase like a car or furnishings in the future just a bit more.”
Suek shares this advice with his family and says they are adopting his wisdom. “My adult children always viewed that option to be dull and boring. Now they have a different take. Saving early provides favorable options in the future.”
Out in Wisconsin near Waupaca, Sales Rep Vicky Giacalone encourages us to remember the annual limits on IRA contributions and to max those limits out, if possible. “In 2019, you can contribute up to $6,000. People over 50 years-old can contribute an additional $1,000. Putting some or all of your tax return dollars toward that limit is a tax-smart plan,” says Giacalone.
If funding an IRA isn’t an option for you – whether you don’t meet the income requirements, are retired, or for another reason – there are still ways to use that money to your advantage, tax-wise.
One option Giacalone recommends is setting up a charitable fund through the Catholic United Financial Foundation with tax refund dollars. “Creating a charitable fund can also provide an opportunity for a 2019 deduction and guarantees money will be there for the charities near and dear to your heart,” explains Giacalone.
Again, if funding an IRA isn’t an option, Sales Rep Angie Jorgensen in Yankton, SD, makes two suggestions. “Use the extra money to pay interest on your student loan. Paying down interest is tax deductible in most situations,” she tells student loan borrowers. “When we pay off debt, we inevitably set ourselves up for a more secure future.”
“You may also consider contributing to your Health Savings Account (HSA) if you have one. HSA contributions are tax deductible, and those contributions may reduce your 2019 tax footprint if you include them on your tax forms next year,” says Jorgensen.
Finally, it likely won’t reduce your taxes, but using tax refund dollars to create an emergency fund, or add to an existing pile of emergency cash, is always a smart idea.
Our Sales Representatives agree that it isn’t too early to plan for your tax needs for 2019. And if you do decide to take a trip or get a new ride at this time next year, you might have more cash in your refund to have a little fun.
[i] According to https://www.irs.gov/newsroom/filing-season-statistics-for-week-ending-march-22-2019
[ii] Catholic United Financial does not provide tax advice. Contact your tax advisor with questions about your specific situation.
[iii] Catholic United Financial IRAs are individual retirement annuities.
