The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: deek on February 20, 2019, 08:50:33 AM
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I'm 27, and finally making good progress with investing objectives/goals and prioritizing. No credit card debt, only 3.5K left to pay off my car, and will be south of 20K owed on federal student loan very soon. Getting a decent tax refund this year and I'm struggling to decide if I want to invest it, pay off a good chunk of the car, keep it all for a bigger E-fund, or spend most on a spring break golfing trip to the Robert Trent Jones trail in Alabama (I haven't treated myself to a vacation in quite awhile). Decisions, decisions.
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I try my best to get a $0 return. This year I did a pretty good job, only getting $50 back.
But if you are getting a large sum, I suggest following the investment order. That's what I would do in your shoes.
https://forum.mrmoneymustache.com/investor-alley/investment-order/
WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to your 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield.
3. Max Health Savings Account (HSA) if eligible.
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if
- 401k fees are lower than available in an IRA, or
- you need the 401k deduction to be eligible for (and desire) a tIRA deduction, or
- your earn too much for an IRA deduction and prefer traditional to Roth, then
swap #4 and #5)
6. Fund a mega backdoor Roth if applicable.
7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield.
8. Invest in a taxable account and/or fund a 529 with any extra.
The case study spreadsheet that floats around here has a pretty good system for helping you determine the best way to set up your W2 so you are keeping more of your money in your pocket over the course of the year. If you are interested in adjusting your withholding to not get such a big return next year, of course.
Good luck!
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If you are getting a large refund you did your withholding wrong. That is an interest free loan to the government. If your car loan is low interest invest the difference.
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We just dump ours into savings.
And because I'm nitpicky, you're talking about your tax refund, not tax return. The return is the document you send to the government.
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We just dump ours into savings.
And because I'm nitpicky, you're talking about your tax refund, not tax return. The return is the document you send to the government.
Well it's good you know what I meant.
I'm getting a little less than $1000 back. Yes, it is an interest free loan to the govt, but I'm not in a position where I'm too worried about the different throughout the year, honestly.
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Yes, I file it with the government (because that's what you do with a tax return). Always 100% the same.
Now my tax REFUND, on the other hand, can go to multiple things. Usually investments, but this year it looks like I'll receive it at around the same time I book my next vacation, so it will probably go to that.
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Yes, I file it with the government (because that's what you do with a tax return). Always 100% the same.
Now my tax REFUND, on the other hand, can go to multiple things. Usually investments, but this year it looks like I'll receive it at around the same time I book my next vacation, so it will probably go to that.
You beat me to it.
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Different every year. This year, I'll ask for $5k in paper US Savings bonds as part of my federal refund. Anything else will go towards whatever I'm allowed to put into Roths for my wife and me.
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Money is money is money. I don't treat it differently based on how I happened upon it. That's something people do when they want to rationalize/justify the way they spend it.
If you want to go on vacation, then go on vacation. You don't need to justify the behavior based on the source of the money, or what day of the week it was, or whether there was a full moon.
Yes, I always do the same thing with the money. Add it to my pile of money. And then I spend the pile however I want to spend it (which usually means buying more VTSAX) :)
Good luck!
Well put.
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Tax refund? What is that?
If you dont mind loaning folks your money at 0% interest, I really could use some help buying this new boat I have my eye on. I swear I'll pay you back.
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We try not to get a refund, but have unexpected things crop up the last few years, so we've gotten them from federal (and generally owed state; but owing is our plan; the refund is the oops).
But "do we always do the same thing with them". Well, money is fungible. I'm not sure we've ever done ANYTHING with our refund, specifically. It's just gone with the other money we have.
It gets direct deposited into an account. From that account we have automatic withdraws for investments, mortgage, bills, daycare; we use it for payment for shopping or vacations. I have no idea what the refund money gets used on specifically. It's just money with all the rest of the money.
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Yes, I file it with the government (because that's what you do with a tax return). Always 100% the same.
I don't do the 100% same thing with my return every year. It is always filled out with different numbers. Though, I do file it with the government :)
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If you are getting a large refund you did your withholding wrong. That is an interest free loan to the government. If your car loan is low interest invest the difference.
I think you just opened my eyes to a quicker road to pay off debt. I’m getting 6700 back on my refund this year. Can you change allocations on w2 at anytime? Is there a way to accurately forecast it so you don’t have to pay? Does it change the way the return is filed besides the end number. Has, childcare credit etc
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Every year, it is used for the same thing -- I pay for annual car insurance, property taxes and annual water/sewer/trash bill.
One year I had enough left over to pay for a used car.
As for the free loan part - yep, it is true. But the hassle of getting the forms in / the process to get the reduction in tax is a several extra steps compared to the US.... so the lost interest for my "loan" versus the hassle is a wash.
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The kind of thinking where different sources of money somehow have different value is what gets a lot of people into trouble.
I agree with the quoted post above, money is money. Where it comes from and how much it is is irrelevant, all money should be processed the exact same way.
If you budgeted for a vacation, then cool, but if you are considering a vacation because you have $1000 coming, then that's nonsensical.
It's not a windfall, it's just part of your normal income, so treat it like normal income that was paid late.
What would you do if $1000 had been missing from your last paycheck and then added to your current one?
As for what we do?
I have literally no idea. With highly variable income, it's not even noticed. I don't even notice paychecks, I always conceptualize money on an annual scale.
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Yep, always the same thing, gets invested. Growing up I never even knew there was anything else to do with them. Was disturbed when I heard of people using them as excuses to buy toys/trips and then was shocked and dismayed when I found out some people count on them to pay bills.
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I don't get a refund. I try really hard to get $0 back, this year I'm getting $15! Ever since I went on ACA healthcare and use an income based tax credit to pay for part of my health insurance, my refund has gone down significantly. The past few years I have worked a little harder to try not to get anything back. I don't make a ton of money, so having all of it to use throughout the year just makes sense. I have co workers who treat it like a windfall...and spend it immediately on things they wouldn't otherwise be able to afford...in reality, it is part of their income that they didn't have access to all year, and then they waste it on unnecessary spending. I don't get it!
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Same thing every year...we write a check to the IRS!
Just kidding, we pay our bill online.