Tax Refunds

Well, it is that time of year again. Time to start thinking about filing your tax returns. If you typically get a huge refund, it is time to change your ways. I know, you wouldn’t be able to save the money any other way, right? Read on my friend.

If you typically have trouble saving money and use your tax refund as a savings vehicle, consider this alternative.

Assume your typical refund is $2,000 a year. Instead of loaning it to the government, put it to work for you in your 401k plan. By increasing your 401k contribution rate enough to invest an extra $2,000 each year you will increase your retirement nest egg considerably and save money on your taxes.

EXAMPLE: You are paid twice a month and earn an average of 9% on your 401k. After 20 years, the $40,000 you added to your 401k plan will grow to $106,688. After 30 years, your $60,000 would grow to $284,253. Not too bad, huh?. Oh by the way, if your federal and state marginal tax rate is 30%, you will save an additional $600 a year in taxes.

Tax services that promote huge refunds are doing you a disservice. When you file your taxes at the end of the year, it is a reconciliation of what you owe for the year versus what you paid. You should come as close to zero as possible.

Refunds are nothing more than repayments of a loan (WITHOUT interest) that you made to the government. If you are in the business of loaning money for free, I will be happy to hold your money for a year and return it to you the following March.

For more information on how to get the most from your 401k, visit www.givemebigmoney.com/401k.html