THIS is the Smartest Thing to do with your Tax Refund!

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Hunter explaining how to invest your tax refund.
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In this video, Hunter Brockway, founder of Boca Retirement Strategies, explains how to utilize your income tax refund to fund your IRA, making nice strides towards a successful retirement.

Transcript:

Introduction to Tax Refunds and IRAs

“Did you know that you can use a tax refund to directly fund an IRA? Well, you can. If you’ve seen my other videos, you know I don’t like getting a refund when I file taxes. But if you are getting a refund, here’s how you can put it to good use. Hi, I’m Hunter Brockway, founder of Boca Retirement Strategies, here to help set you up for a successful retirement while spending more and avoiding being killed in taxes.

Understanding IRA Contribution Limits

An income tax refund can be directly deposited into an IRA up to the annual contribution limit. In 2023, the contribution limit is $6,500, or $7,500 for individuals age 50 or older. You can still put money into either traditional or Roth individual retirement accounts up until the tax filing deadline, which is usually mid-April of the following year. It can also be split along multiple accounts. On top of your contribution, up to a $6,500 contribution can be made for a non-working spouse, or $7,500 for individuals that are 50 or older.

Step-by-Step Guide to Using Tax Refunds for IRA Funding

Here’s how you do it:

1. Prepare your tax return for the year.
2. Determine the refund amount. Once you know how big your refund will be, decide how much, if any, you would like to contribute to your IRA or Roth IRA, up to that maximum contribution allowance.
3. A refund going to only one account can be done directly on IRS form 1040. Use IRS form 8888 to direct the refund to up to three accounts.
4. Watch out: If you use form 8888, pay attention to the five cautions provided by the IRS in the instructions to ensure that you do not fall into any traps. The forms can be found on the IRS website at irs.gov.
5. Follow up, follow up, and follow up. If the IRA deposit is meant to be for the prior year, make sure the institution will code it that way and that it is received in time. In other words, don’t wait until April to file your taxes then expect the refund to be contributed before the tax filing deadline.

Important Cautions and Follow-ups

If the refund amount is adjusted for math errors or tax adjustments, check which accounts on the form are affected. You may need to do an amended return if the IRA deposit is adjusted. If your refund is offset, for example, because you owe past taxes, also check which accounts are affected. Again, you may need to do an amended return if the funds go into the wrong account. Deal with the institution to get the funds credited to the correct account.

Taking Action and Preparing for Retirement

And there you have it, a useful way to use the money that you lent to the government all year. Take action, prepare your tax return early in preparation to fully fund eligible retirement accounts for the current year.

Introduction to Boca Retirement Strategies

I’m Hunter Brockway, founder of Boca Retirement Strategies. If you’re curious about how we work with our clients and the value we deliver, you can book a no-cost, no-obligation call on our website at BocaRetirement.com, or email us at contact@BocaRetirement.com. We’re based in South Florida, Western Massachusetts, and work with clients scattered throughout the US. Enjoy your successful retirement and thank you for watching.”

 

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