Hmm... What should I do with my tax refund?
Sometimes a tax refund seems like free money from the government. Hello big-screen TV, luxury getaway or latest iphone. That refund, however, was your own money all along. You’re just getting it back. By resisting the urge to splurge, you can use that money to enhance your future finances. Here are some of the most effective ways to apply the refund to your financial benefit.
Pay off debt. If you have any high-interest debt, such as credit card debt, you can use the refund to reduce the balance and lower, or perhaps eliminate, the ongoing interest costs.
Add to an emergency fund. Your tax refund can enhance an existing emergency fund or present a great opportunity to get one started.
Contribute to a registered plan. You can be tax-smart and move the refund dollars to a tax-advantaged environment – your Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA) or Registered Education Savings Plan (RESP).
Help offset tax on RRIF withdrawals. When retirement arrives, tax will be payable on Registered Retirement Income Fund (RRIF) withdrawals at your marginal tax rate. But there’s a way to minimize the tax liability’s effect. Every year, invest your RRSP tax refund in a non-registered account, and dedicate these funds to help offset the tax payable on RRIF withdrawals.
Compromise. If you just can’t resist the urge to buy a luxury item or go on a vacation, perhaps you can compromise. Spend some of the refund for your own enjoyment and apply the rest toward improving your financial future. While interest payments and taxes can be quantified, memories with your loved ones are priceless.
This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
