Tax refunds are often thought of as a great way to catch up on household bills. For others, it’s used as a way to splurge on a great pair of shoes, and for some, it pays for airplane tickets to a tropical destination. It might not seem exciting, but a tax refund can also be looked at as a way to save and invest.
“Keep in mind that if you get a modest 5 percent rate of return each year, $2,500 today turns into almost $8,500 in 25 years, more than tripling your savings,” according to USA Today. “If you find a way to invest an additional $2,500 every year, you’ll be sitting on more than $133,000 in 25 years.” Hoping to make money off of your tax refund this year? Here are a few ideas to help get you started.
1. Contribute to a Roth IRA
A Roth IRA lets you put money away, which will grow to be tax free after you turn 59 1/2 — as long as you’ve had the account open for a minimum of five years, writes Forbes. So, let’s say you put $2,700 into that account. It will earn 7 percent on average per year, meaning it will grow to be worth more than $10,000 in 20 years. Now, imagine if you contribute that every year — you’re then looking at a tax-free account that has more than $118,000 in it. Further, your earnings can also be used penalty free for expenses related to education or first-time home purchases.