As most of you should have filed our taxes by now (if you haven’t yet, remember the deadline to file tax for individual is April 30, 2024).
If you have already done so, it’s a great time to discuss how to make the most of any potential tax refund. I recently came across an insightful podcast titled “Make the Most of Your Tax Refund!“
This podcast featured Sébastien McMahon, Chief Strategist and Senior Economist at IA and his colleague, Pablo Carrera, who shared their knowledge on effectively using tax refunds to bolster one’s financial well-being.
Here are some key aways along with my personal insights.
Utilizing Your Tax Refund for Savings and Investing:
Investing your tax refund wisely can be a boon for your financial health. Here’s how you can use different accounts to maximize this opportunity:
- First-Time Home Buyer Savings Account (FHSA): If you’re planning to purchase your first home, the FHSA can be a great option. This account offers tax deductions on contributions and tax-free growth, making it a powerful tool for accumulating your down payment.
- Registered Education Savings Plan (RESP): For those saving for a child’s post-secondary education, the RESP not only grows tax-free until withdrawal but also attracts government grants which can add substantial value to the education fund.
- Registered Retirement Savings Plan (RRSP): Ideal if you are in the accumulation phase of your retirement planning. Contributions to an RRSP can reduce your taxable income now, while your investments grow tax-deferred until withdrawal.
- Registered Disability Savings Plan (RDSP): For individuals with disabilities or families planning for a member with disabilities, RDSPs offer long-term savings benefits and include substantial government grants and bonds that enhance the growth of your contributions.
- Tax-Free Savings Account (TFSA): Suitable for nearly all Canadians, whether in the accumulation phase or as retirees looking to shelter investment growth from taxes. The flexibility of TFSAs allows you to withdraw funds tax-free at any time, for any purpose.
Repaying Debt
As discussed in the podcast, another prudent use of your tax refund is to pay down high-interest debt. This includes credit card balances, personal loans, or any other debt that charges higher rates. Paying these off can reduce the amount you pay in interest and free up additional resources for other financial goals.
Sébastien McMahon, Chief Strategist and Senior Economist at IA
“So it’s about not creating anxiety by thinking about the best practices for savings. It’s about having a plan that makes sense, that’s realistic, and that you revise as you move forward in life, adjusting the plan as you go.”
If you are interested in listening to the podcast, here’s the link to it.
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