Some exciting changes are coming to Honest Dollar. Goldman Sachs will soon be your new broker-dealer. Learn more about this change.

Some exciting changes are coming to Honest Dollar. Goldman Sachs will soon be your new broker-dealer. Learn more about this change.

A Tax Refund Could Jumpstart Your Retirement Savings

A tax refund can help you save money for later in life. If you are expecting a tax refund and are financially able to dedicate even a small portion of it to a retirement account, doing so could help you advance toward a more financially secure future.

There are many ways to use a refund

There are many ways to use a tax refund, based on your financial circumstances. You might even want to divide any money you receive across multiple uses. One survey found that nearly half of people expecting a refund were planning to put some of those dollars into savings.1 That was the most commonly cited use, followed by paying down debt, helping with everyday expenses, spending on a vacation, and making a major purchase such as a TV or car.

Make your tomorrow a priority today

Before you put aside money for retirement, check that you have enough money for living expenses and short-term financial obligations, as well as access to an emergency fund. If you can afford to save now for later in life, you might want to consider how much of your refund to set aside for retirement—and make it happen. For example, you might sign up to have a larger percentage of your pay contributed to a 401(k) plan at work, or you might make one-time or recurring contributions to an Individual Retirement Account (IRA).

The annual maximum IRA contribution for 2020 and 2021 is $6,000 if you are younger than 50 at year-end and $7,000 if you are 50 or older. Making a sizable contribution to an IRA as soon as you receive your refund can get those dollars out of your bank account before you spend them on something non-essential.

Tax benefits may help you save

One of the attractions of saving for retirement in an IRA or a 401(k) is that you may get tax benefits to sweeten the deal. If you put a portion of your refund into a Traditional IRA as a 2020 or 2021 contribution—or you make pre-tax contributions to a 401(k)—you may be able to reduce your 2020 or 2021 taxes. Plus, your money can grow tax-deferred until withdrawn in retirement. With a Roth IRA or Roth 401(k), you contribute after-tax dollars today, and your withdrawals in retirement are tax-free.

Your eligibility to deduct a Traditional IRA contribution depends on a number of factors, such as tax-filing status, whether you have a retirement-plan through an employer, and your income. If you are eligible for both a Roth IRA and a deductible Traditional IRA, consider your circumstances in deciding which one you might select.

At Honest Dollar by Goldman SachsTM, individuals can easily open a Traditional, Roth or SEP IRA and get access to diversified investment portfolios constructed by the Goldman Sachs’ Investment Strategy Group.

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