Jill On Money: What to do with your tax refund
The government eventually forces you to take money out of traditional plans in the form of Required Minimum Distributions (RMDs). If you were born in 1950 or earlier, your RMD age is 72; for those born between 1951 and 1959, the age is 73; and if you are born in 1960 or later, your RMD age is 75. RMDs can often keep people in high tax brackets later in life and can also trigger extra costs for Medicare.
If you have children or grandchildren who are bound for college or private high school, funding a 529 plan is a tax efficient way to defray future costs. Your state of residence may offer a tax deduction for 529 plan contributions, so be sure to start with that plan.
Stocks have been on a massive run recently, but presuming that you don't need the money within the next few years, investing in a diversified mix of low-cost index funds over the next years and decades makes sense for the long term.
As far as using a refund to pay down an outstanding mortgage balance, it depends on your situation and the rate of the loan.
When you pay down a mortgage, you lose access to the money – and as you age, that money could provide stability and also be necessary to fund health and medical needs.
Beyond liquidity issues, with a long enough time horizon, investing the money that you would use to pay down your home would likely result in higher returns than the rate of the mortgage.
_____
_____
========
(Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check her website at www.jillonmoney.com)
©2024 Tribune Content Agency, LLC
