Credit Unions Guide Members to Save and Invest Their Tax Refunds

Encourage your credit union members and non-members to set up emergency funds, retirement, or college education plans.

3/12/2019 

Clock, tax time, save your money with a credit union

The clock is ticking down to April 15. Many taxpayers are still in the midst of compiling and filing, while others are counting down the minutes to their refunds. 

And with recent tax policy changes, most are wondering just how much their refunds will be—if anything. 

According to a recent article in Money Magazine, the outcome is always somewhat of a guessing game at tax time, but this year taxpayers have encountered an extra mystery when filing. After hearing for weeks that income-tax refunds are lower than 2018, they may be pleasantly surprised—and simultaneously confused—to learn that the IRS now says that average federal tax refunds are higher than last year. 

According to Money Magazine, recent IRS data shows that the average tax refund for returns filed through Feb. 22 is $3,143. That’s slightly higher than the average refund filed by roughly the same time in 2018 of $3,013. 

So, what is the best investment for several thousands of dollars in refunds 

Jim Mau, President and CEO of Heritage Grove Federal Credit Union in Salem, Oregon, reminds taxpayers that their refunds are not really a windfall; rather, the refund is a part of their income that has been loaned interest-free to the government. And while some taxpayers treat themselves to entertainment or material goodies after they receive their refunds, credit unions have a more impactful idea  long-term, fruitful investment. 

“It really depends on the individual, their lifestyle, financial situation, and long-term goals as to how we advise them on healthy options to invest their tax refunds,” said Mau. “Our number one recommendation for anybody receiving a tax refund is to invest that in a personal emergency fund—a fund that anticipates a potential loss of income, a medical emergency, car breakdown, or any number of unforeseen hazards.” 

After establishing an emergency fund, which should include six to nine months of living expenses, Mau recommends members pay off or pay down high-interest credit cards. 

“If the tax refund is not enough to make a substantial mark on those credit card debts, credit unions offer consolidated loan products with much lower interest rateslike home equity lines of credit or even loans using car titles as collateral that can enable them to reduce high-interest debt through consolidation,” said Mau. 

If members are squared away with a sound emergency fund and have little credit card debt, Mau recommended investing the tax refund in retirement account like a 401K or IRA. 

“Every age group needs to diligently save for retirement—whether you’re 20 or 50 years old, the importance of consistently investing in your IRA or 401K or matching other company retirement programs cannot be underestimated,” said Mau. “And it is so important for younger generations to understand the importance of investing in themselves and how the concept of compounding works in their favor—while it’s hard to think about retirement or life surprises when you are 20-something, using your tax refund to invest in your future would be a brilliant move.” 

Other options for wisely investing anticipated tax refunds might include opening a college savings plan for your child, making a tax-deductible charitable donation, planning home improvements, making an extra mortgage payment or two, or any number of higher return investments. 

Credit unions can help members invest their refunds smartly. By providing them with valuable investment and savings planning, credit unions strengthen member relations and empower them financially.