Ledes from the Land of Enchantment

This tax season, invest refunds in education

With tax season in full swing and Tax Day now here, it’s time to think about what to do with a tax refund, you should receive one. For those who receive tax refunds, a big purchase like a new TV, phone or splurge purchase may sound tempting, but this tax season, we urge individuals to think about the future and make prudent investments.

From both a tax standpoint and a future-thinking standpoint, an investment in education is always a smart choice.

According to the Education Data Initiative, 43.4 million Americans have student loan debt, totaling $1,749 trillion. With costs of higher education rising and higher education linked to greater career and salary opportunities, the student loan crisis is growing. By planning now for the future, you can help to keep the next generation from being saddled with this type of debt.

This tax season, consider investing in a 529 education savings plan. For New Mexicans, our state-run 529 plan is The Education Plan®. Funds put into a 529 account can be used by the investor, or for children, grandchildren or any relative or family friend. Anyone can open a 529 account for anyone, and you do not need to be related to the beneficiary. So, whether you’re planning to go back to school to advance your own career or planning ahead for future generations, it’s a smart investment with varied options.

In addition to relieving the burden of student loan debt, a 529 plan has a number of tax benefits. For New Mexicans, the contributions are tax-deductible on state income tax returns, and your earnings will grow tax-free. And when funds saved are utilized for education-related expenses at any college, university or trade school in the nation, withdrawals are also tax-free.

As the past two years have been difficult for many financially, it might seem that saving and investing are out of reach for some; however, investing in education is for everyone. The flexibility of these plans allows for accounts to be opened with only a dollar and added to at any time. Whether you’re able to save a little or a lot this year, we encourage you to utilize tax season as a time to look ahead, plan and save for your personal goals and those of your family.

And if you do receive a tax refund for 2021, consider investing that money instead of spending it. That investment will grow through compounding interest, making a brighter financial future a reality in the years to come.

Ron Schranz is the managing partner at Burt & Company CPAs in Albuquerque.

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