Making the most of your tax refund
Now that the deadline for filing your income tax return has come and gone, it's time to start thinking about happier things – like what to do with your tax refund. You could spend it on a much needed vacation but before you do, think long and hard about your available options.
Many people use their refund to pay down debt while others funnel it into retirement or education funds such as RRSPs and Registered Education Savings Plans (RESPs). Let's be honest. Saving money isn't as much fun as spending it, but being debt-free and financially secure so you can enjoy the finer things in life in the future seems like a decent alternative!
Here are the more financially "prudent" options for you to consider:Pay down debt
- There's a lot of buzz in the media about Canadians carrying greater and greater debt loads. If you're part of that group, debt reduction might be your best option, especially credit cards. Big balances on your credit cards seriously erode your ability to build assets.
- If you own a home, your mortgage is probably your largest debt. Depending on how close you are to retirement, it could make sense to make a lump sum payment on your mortgage instead of applying the extra cash to retirement savings. But make sure you check the details of your mortgage payment options as there can be limits or even penalties for early pay-downs. And, if your interest rate is low, you might want to continue making your regular payments and use your refund elsewhere.
- The tax benefits of applying your refund to an RRSP are well known. You receive a tax reduction on your next return and over the long term, any income you earn on your investments are tax-deferred. Remember too, if your RRSP generates compound interest, then what you invest today will be worth substantially more when you retire.
- Through the Canada Education Savings Grant and Canada Learning Bond, the government also contributes towards the savings of eligible participants, increasing your saving potential. And although contributions are not tax-deductible, all investment income earned is tax-sheltered while it remains in the plan. Once withdrawn and used to pay for a child's education, earnings and government contributions are taxed at a very low student rate.
- If you don't have any other pressing financial needs, why not consider donating all or part of your tax refund to charity? When you give to charity there's a wonderful payoff. You have the reward of knowing you're giving back to the community by helping those in need and at the same time, the donation tax credit provides a benefit to you.
- If none of the above appeal to your prudent side, there's always the opportunity to stimulate the economy by buying that new big-screen television or whatever else catches your eye.
Whichever route you choose to go, your BlueShore Financial advisor has the experience and expertise to help you make the most out of your money. Contact your advisor to explore your options today.