At Wealthfront, one of our goals is to help our clients be prepared for tax season as early as possible. However, if you’re like the 20% of Americans who filed their taxes last in April, you might be feeling a bit anxious if you’ve once again put them off. So if you haven’t started organizing for your taxes yet, never fear — we’ve created a handy checklist to help you get started and over the goal line before the April 17th deadline.
But we’re always amazed to see how many of our clients get to work on their taxes as early as February. The main reason is that they want to get their hands on their refund as soon as possible. Yet we also get a lot of questions asking for tips on how to best put that money to use for the long term. So if you’ve already gotten your refund, or have filed recently and expect one soon, we have a few ideas on what you can do with that windfall from Uncle Sam:
Pay off some debt
This is probably a bit of a buzzkill, but any debt that has a high interest rate can hurt you financially in a big way. Paying off credit card debt should be your highest priority, followed by student debt. In fact, we actually recommend paying off your student loans before you invest with Wealthfront.
Get a head start on your IRA or Roth IRA for 2018
Contributing early in the year to your IRA or Roth IRA is one of the best things you can do to give your money even more time in the market. But remember, the IRS imposes restrictions on IRA contributions related to your income, so you may not have the opportunity to contribute every year if you make too much money. If you think you might make more than $120k this year (or $189k jointly), then you may want to hold off on contributing to a Roth IRA until you know for sure. Here’s a little bit more on IRA contribution limits.
Start a 529 College Savings Plan
If you are gunning for parent — or aunt… or uncle… or Godparent — of the year, using even a small portion of your return can go a long way to help a future college kid thanks to the power of compounding. Like IRAs, 529 plans have potential tax benefits. As long as you use the money for a student’s qualified educational expenses, your withdrawals are tax-free. Wealthfront makes it easy to start planning for the school of their dreams and open up a 529 account.
Boost your career with online education
One way to secure your ambitions faster: make more money! Whether you are trying to get promoted, negotiate a raise, or change jobs, there are a number of new and competitively priced ways to conveniently go back to school and earn valuable (literally!) new skills. As an alternative to traditional graduate degree programs, a number of top universities have partnered with edX to offer online “MicroMasters” certificates across a number of disciplines at a fraction of the cost of a full degree. Startups like the Lambda School specialize in computer science coursework and offer students a unique “income share” where they pay tuition costs only after they secure a role that pays at least $50,000.
Wealthfront and its affiliates do not provide tax advice and investors are encouraged to consult with their personal tax advisor. Financial advisory and planning services are only provided to investors who become clients by way of a written agreement. All investing involves risk, including the possible loss of money you invest. Past performance does not guarantee future performance.
Wealthfront prepared this article for informational purposes and not as an offer, recommendation, or solicitation to buy or sell any security. Wealthfront and its affiliates may rely on information from various sources we believe to be reliable (including clients and other third parties), but cannot guarantee its accuracy or completeness. See our Full Disclosure for more important information.
For more information about the Wealthfront 529 College Savings Plan (the “Plan”), download the Plan Description and Participation Agreement or request one by calling 844-995-8437 or emailing firstname.lastname@example.org. Investment objectives, risks, charges, expenses, and other important information are included in the Plan Description and Participation Agreement; please read and consider it carefully before investing. An investment in the Plan is not insured or guaranteed by the FDIC or any federal or state government or agency. You could lose all or a portion of your investment. Wealthfront Brokerage Corporation serves as the distributor and the underwriter of the Plan.
Before you invest, consider whether your or the beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in that state’s qualified tuition program.
The Plan is administered by the Board of Trustees of the College Savings Plans of Nevada (the “Board”), chaired by the Nevada State Treasurer. Ascensus Broker Dealer Services, Inc. (“ABD”) serves as the Program Manager.
Earnings on nonqualified withdrawals are subject to federal income tax and may be subject to a 10 percent federal tax penalty, as well as state and local income taxes. The availability of tax and other benefits may be contingent on meeting other requirements.
Financial advisory, planning, and investment management services are offered by Wealthfront Inc. (“Wealthfront”), an SEC registered investment adviser. Brokerage products and services offered by Wealthfront Brokerage Corporation, member FINRA / SIPC and a wholly-owned subsidiary of Wealthfront.
About the author(s)
Kara Brenholt, CFA, is a Product Manager at Wealthfront. She joined Wealthfront's Client Services team in 2015, and graduated from NYU in 2014 with a B.S. in Finance and Marketing. View all posts by Kara Brenholt