Save Your Tax Refund With These Easy Tips
March 28, 2018
The annual tax-filing deadline is coming up! If you’re eligible to receive a tax refund, you might ask yourself, “What should I do with this money?” Unfortunately, many Americans spend their tax refunds on healthcare costs.
New research indicates that healthcare spending spikes 60 percent in the week after people receive their tax refunds, since many individuals delay receiving healthcare until they have disposable income. But instead of using your refund on healthcare expenses, you could save money all year long with pre-tax benefits – which would allow you to save or invest your refund dollars when you get them. Here are a few easy tips to save your tax refund.
Enroll in an HSA
Do you have a High-Deductible Health Plan? If so, get out in front of medical expenses with a Health Savings Account (HSA), so you won’t have to spend your tax refund on healthcare costs. One of the perks of this type of account is that you can take action when it’s convenient for you. That’s because you can enroll in or make contribution changes to your HSA at any time.
By enrolling, you’ll save money on any expenses you currently have because of the HSA tax benefits you'll see. Money you contribute is put in tax-free. Plus, the triple-tax advantage means contributions are tax-free, earnings are tax-free and withdrawals for eligible expenses are tax-free – meaning those dollars can be left in the account for later use. And funds carry over from year to year, so it’s easy to let your funds grow.
Invest your HSA funds
HSAs have emerged as a popular investment tool as a way to grow your funds quickly so you can better prepare for future healthcare expenses. You can withdraw your funds tax-free at any time to pay for eligible expenses. And, once you've reached age 65, you can spend your HSA funds on anything without facing a tax penalty (although you'll have to pay income tax on funds used toward ineligible expenses).
Our low-investment threshold and enhanced investment experience make investing easy. Watch our video to learn more about investing your HSA dollars.
Use your FSA funds first
For those with a traditional health plan, a Medical Flexible Spending Account (FSA) is a great tool for pre-tax savings.
If you’re currently enrolled in an FSA, make sure to use those funds instead of your tax refund to pay for healthcare expenses, since there are limits to the amount of funds you can carry over to the next year.
If you’re not enrolled in an FSA and find yourself spending much of your tax refund on healthcare expenses, be sure to plan to enroll in one during the next open enrollment period. You’ll get all of your funds at the start of the plan year, so you won’t have to delay healthcare until tax refund season. (Just remember, you can’t enroll in a full Medical FSA if you also have an HSA, but you can enroll in a Limited FSA if you have an HSA. Check out our blog post for more information on differences between the types of Flexible Spending Accounts.)
Use tools to help you plan going forward
A little bit of planning goes a long way in ensuring that you’re making the best decisions on how to save on healthcare costs. Make sure to:
- Look at your annual healthcare expenses for the past few years. Are you spending your tax refund on a recurring expense? Are the expenses consistent? These are questions worth asking because they can help determine how much you should contribute to a benefits plan.
- Use calculators to figure out what you could save. We offer HSA and FSA calculators that will help you decide how much you should contribute to each type of account based on your own goals and expenses.
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This post was originally published in March 2018. It was reviewed for accuracy in March 2019.