The Internal Revenue Service will be sending you a check as part of the Economic Stimulus Act of 2008. So what should you do with your government windfall?
“Most taxpayers will receive their stimulus check in May or June. If they combine it with their 2007 income tax refund, we may be talking about a nice chunk of change,” Martin said. “With a little planning you could turn that money into a lot more down the road.”
About 111 million households are in line to receive a one-time tax rebate as part of the $150 billion economic stimulus effort. According to the IRS, in 2007, more than 96 million households received an average tax refund of $2,255. This year is likely to be even more.
So what should you do with your government windfall?
1. Invest in retirement:
“Start by adding to your retirement savings,” said Martin. “There are few things better for investing for the long term than tax-deferred, compounded growth. Assuming an average annual rate of return of 10%, a $2,500 deposit now should grow to more than $10,000 in 15 years.”
Martin added that many taxpayers may be eligible to have their tax refund deposited directly into Traditional or Roth IRA accounts. In 2008, taxpayers can contribute up to $5,000 into either type of IRA. Individuals age 50 and older can contribute an extra $1,000 as their catch-up contribution.
2. Save for college:
If you have already maxed out your retirement savings for the year, Martin suggests investing for college. According to SavingForCollege.com, on average, college tuition is increasing by about 6% a year. Last year alone, the average public university increased its tuition by about 6.9%, while a private education increased by 6.3%.
“Families should seriously look at state-sponsored 529 college saving plans as a way to build tax-advantage savings for funding a future college education,” Martin said. “Some states offer residents tax benefits for the contributing to their 529 plan.”
3. Consider self-improvement:
Taxpayers could opt to invest in themselves, Martin explained. One of the best ways to improve career prospects and income potential is continuing education in your field. It may be improving your computer proficiency, acquiring an MBA or getting additional certification. You may be able to use your new qualifications to make the case for a raise or a new, better paying job altogether.
“Remember to include any education-related tax breaks you may be eligible for when filing your taxes next year,” Martin added. “Also, check with your employer to see if the company offers financial assistance or reimbursements for additional training.”
4. Beef up the emergency fund:
So what if your retirement is squared away and the children have scholarships? Make sure you have an appropriate amount of emergency reserves on hand.
“The last thing you want to do in an emergency is to be forced to sell an asset to raise cash when it is at an all-time low, or borrow money when rates are at an all-time high.” Martin suggested keeping these reserves in risk-free, readily available investments, such as FDIC-insured deposits or CDs, and set them aside for that rainy day.
“A shiny gas grill may be tempting, but knowing you have money set aside to cover an emergency will undoubtedly let you sleep better at night,” Martin said. “That peace of mind is better than any barbecue.”
About The Henssler Financial Group
With assets under advisement of more than $1.22 billion as of March 31, 2008, The Henssler Financial Group has been delivering comprehensive financial solutions to its individual, corporate and institutional clients for 20 years. Founded in 1987 by Gene W. Henssler, Ph.D., The Henssler Financial Group provides solutions that incorporate a range of services including wealth management, financial planning, tax preparation and consulting, small business retirement planning and estate planning.
Beginning May 4, “Dr. Gene” and his Associates take to the airwaves on 920 AM WGKA with “Money Talks,” Atlanta’s longest running and most respected money show on radio. “Money Talks” will air Sunday mornings from 9-11 a.m.
More information on The Henssler Financial Group can be found on the firm’s Web site, www.henssler.com, which also features an extensive library of articles on a variety of financial topics.