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How to spend your tax refund, use IRS withholding calculator

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Even though experts advise against planning large tax refunds, many people prefer a lump sum payment.

This is you, and while you can’t be persuaded to choose a bigger salary for the rest of the year, at least make sure you’re making the most of this yearly infusion.As of April 7th, The IRS has issued more than 69 million refunds totaling more than $198 billion. The average refund amount was $2,878. There are many things you can do with that money.

Before entering the options Let me remind you again that this forced savings strategy is not wise.

If you deliberately accept repeated refunds, you are giving Uncle Sam an interest-free loan. Evaluate withholding annually. If you used a tax professional, ask him or her to verify your tax withholding. again, “Withholding slip” and IRS.gov, which allows you to adjust the amount deducted from your paycheck to give you more money to save or pay off debt.Use the result to create a new W-4 Employee tax withholding slip to your employer if necessary.

IRS spokesman Eric Smith said:

If you qualify for certain tax relief, such as tax refunds, you may not always be able to avoid large refunds. earned income tax creditIn other words, you can get a refund even if you have no tax liability.

If you’ve already received a refund or just applied for it and are waiting for it, keep your promise to use it wisely.

I had promised to do something for her, but kept putting it off.

Finally, she got tired of my procrastination and one morning “Mom, today is tomorrow.”

Make this if you haven’t done it before A year of doing something smart with a refund. Here are some ideas on how to use it.

Start or build an emergency fund

Nearly half of U.S. adults have no emergency savings or are saving less than they did last year. according to bank rate report.

To calculate your emergency fund amount, take your bank statement, add up all the money you need to run your household for a month, and multiply that figure by the number of months you want to save. Experts recommend saving at least three months worth of money. An average payout of over $2,800 gives many people a good start towards that goal.

Creating a “Life Happens” Fund

Your emergency fund is for dire situations such as unemployment.

This is another money to cover unforeseen financial emergencies such as major car repairs. You will be withdrawing money from this fund to pay for the cost of reducing your emergency fund, leaving you vulnerable if your income declines.

Credit card debt hits all-time high. Here’s one way to pay it off.

Credit card balances soared to $986 billion in the fourth quarter of 2022, surpassing the pre-pandemic high of $927 billion. Data on household debt From the Federal Reserve Bank of New York.

Yes, I need some money for a rainy day fund. But don’t leave yourself in high-interest debt because you’re afraid to spend your savings.

More than a third of US adults say their credit card debt outweighs their emergency savings, according to a Bankrate survey.

Are you in student loan debt and still waiting for the Supreme Court’s decision on the Biden administration’s waiver program?

Save your refund in case the loan forgiveness does not occur.

Conservative judges skeptical of Biden’s plans for student loan forgiveness

Buy Inflation-Resistant I-Bonds

The IRS has made investing easier by allowing you to deposit part or all of your refund directly into your financial institution of choice.

Individuals may purchase up to $10,000 in electronic I-notes in a calendar year. You can also use your federal income tax refund to purchase up to $5,000 in Paper I Notes. This could total $15,000 in a calendar year for an individual.

use IRS Form 8888 — Refund Allocation (Including Purchase of Savings Bonds) — Buy ​​a bond with a refund. To purchase an e-I-Bond, you need to open an account. TreasuryDirect.gov.

Series I savings bonds are issued by the US Treasury Department. Investors get a combination of fixed interest rates and inflation rates.

I bonds pay 6.89% until the end of April. When you purchase an I-Bond, the rate will apply for 6 months from the date of issuance.

Fixed interest rates that never change are announced by the US Treasury Department on May 1st and November 1st of each year. Inflation rates are also released on May 1st and November 1st each year.Experts believe that the inflation rate below 4%.

Invest in low-cost index mutual funds

While it’s smart to use refunds to start or boost an emergency or life happens fund, it’s also time to put your money to work by investing in non-retirement accounts.

You can find some good funds by going to Bankrate.com and search “Best Index Funds of April 2023”

Fund 529 College Savings Accounts

Years ago, you promised to start saving to send your kids to college. Please do so.

under 529 Plans, income is not subject to federal taxes when used for eligible educational expenses such as tuition, fees, books, and room and board.of Consumer Financial Protection Bureau website useful post It explains the 529 plan.

People with disabilities have the opportunity to save. Able account, also known as the 529 A account. This is a tax incentive that saves disability-related costs for disabled beneficiaries. The annual contribution limit for his ABLE account in 2023 is $17,000. ABLE account earnings are also tax-deferred and withdrawals are tax-free when used for eligible expenses such as housing, assistive technology, employment training and support, and medical expenses not covered by insurance. Please visit our website. ABLE National Resource Center.

BOM — Michelle Singletary’s Best of Personal Finance

If you have a personal financial question for Washington Post columnist Michelle Singletary, call 1-855-ASK-POST (1-855-275-7678).

Protect your life from recession: A tsunami of economic news is leading consumers, investors and would-be homeowners to ask if a recession is inevitable. Practical steps you can take to protect yourself From worst case scenario.

Credit card debt: Carrying on your credit card debt is never a good thing and you need to get out of the habit.Considering that the Fed continues to hike rates, here are 7 ways to reduce your credit card debt.

Money moves for life: For an overview of Michelle’s timeless money advice, see Michelle Singletary’s Money Milestones. The interactive packages provide guidance for every stage of her life, from those just starting their careers to those retiring to prosperity.

try yourself: Do you know where you stand financially? Take the quiz and read advice from Michelle.

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