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Everything to Know About the New Child Tax Care Credit

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President Biden’s new Child Tax Care Credit plan is officially in effect and if you qualify, you really want to be sure to take advantage of this opportunity.

https://www.whitehouse.gov/child-tax-credit/

Today, we’re going to help you to do just that, by going into the pros and cons of the plan and we’ll even give you some suggestions for getting the most mileage out of this excellent benefit for your children.

So, how does the Child Tax Care Credit break down in simple terms?

Anytime there’s a large government initiative, it seems that some people end up missing out because the language seems hazy or the process has enough red tape to frustrate people from using it.

The Child Tax Care Credit doesn’t have to be one of those, so let’s clear the air right away. Here are the pros of this amazing plan.

Pros of the Child Tax Care Credit

When you break it down, it’s actually quite useful, and as far as government initiatives go, fairly clear when it comes to the benefits.

Here is a breakdown of the program and what it means to you:

  • Aims to reduce child poverty – The Child Tax Care Credit has a simple aim. It is designed to reduce the impact of poverty on children for a period of 6 months to one year. The efficacy of the plan is maximized by providing appreciable cash credits payable over time to ensure a regular period of assistance.
  • Amounts designed to make a difference – Every child that is under 6 years of age will get $3,600 under this plan, which is $300 per month. Further, for children aged 6 to 17 years old, $3,000 will be given in the form of $250 per month. This is an enormous improvement over the previous $2,000 cap for children up to 16 years of age and opens up many opportunities for families who qualify.
  • Distribution methods help reduce the chance of abuse – Half of the credit may be obtained through filing the claim through yearly taxes, with the other half claimed from monthly installments. This is a great idea that should ideally ensure a regular, stable level of assistance over time, but it will need to be used with care if it is to be an effective solution for the covered time.

Cons of the Child Tax Care Credit plan

Every plan has its caveats, though the Child Tax Care plan seems to have been well planned. Here are the perceived caveats of the Child Tax Care Credit plan:

  • Temporary solution – This is a temporary solution and is not expected to be repeated next year. As such, it is going to need to be used very carefully and parents would do well to sock away some savings for a rainy day. It’s a great plan but think of it as a financial band-aid and plan accordingly.
  • Potential for abuse – Detractors of the plan fear that there will be widespread abuse, with the funds not necessarily going towards the best interests of the children. Many feel that more safeguards should be in place in regards to how it may be spent, but currently, this is not the case and thus a high potential for abuse exists.

Strategies for making the most out of your Child Tax Care Credit

If you qualify for the Child Tax Care Credit act then the next step is going to be making the most out of the program while it is in effect.

We’ve got a few suggestions that can help you to do just that. Let’s take a look at some of the best ideas for getting the most out of your Child Tax Care Credit.

Consider consulting a financial advisor

First off, financial advisors are there to save you money. Despite what you see in the movies, they aren’t just there to help rich people buy stocks. Financial advisors are there to help you make money and keep it.

Check out this article by the New York Times on the CTCC.

There might be some options that you have never considered and a single consultation with an expert might be just what you need, especially if both parents are conflicted about how to best use or otherwise distribute this funding.

Shore-up your savings

You will want to put some of the money in a high-yield savings account. If you haven’t got a college fund for your children yet, this is a great opportunity to start.

Alternately, you can simply set up a rainy day fund that can make all of the difference in the world the next time that something unlucky occurs.

Don’t spend all of the funding. You’ll be happy one day that you put a little away, so resist the temptation to spend it all as it comes!

Consider expanding your child’s interests

These additional funds can expand your child’s horizons with a little careful planning. Art supplies, musical instruments… you get the idea. While lessons are expensive, keep in mind that we are living in the information age, so you could purchase a few lessons to get your kids interested, and then free YouTube lessons can help to fill in the gap!

It’s a great opportunity to expand your children’s horizons so this is something to consider.

Teach your kids about finance by giving them some say in how it is spent

Obtain a prepaid debit card and teach your children about finance by getting together and making the spending decisions democratically.

As the parents, of course, you are going to have the final word, but you might let them make the occasional mistake so that they will learn.

The experience of creating and following a budget, when learned at an early age, is beneficial for a lifetime. If you do it carefully, this is a great way to teach the importance of money and planning a realistic budget and this is a lesson that will take them far!

Some final words on the Child Tax Care Credit program

The Child Tax Care Credit is here and you need to take advantage of it before it’s gone. Just remember, this is a temporary thing, so you can’t expect these funds next year.

What you do with them now will help to determine how much they benefit your kids and if everyone uses these funds responsibly then this will greatly affect the possibility of such plans occurring again in the future.

So, if you qualify, take advantage of this program now, and rest assured that this is going to be a great year for you and your children!

Image credit: [BADPSfoNnvM]

What You SHOULD Do with Your Tax Refund

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Stop! Don’t buy that new iPhone with your tax refund! You can put it to much better use!

The money you get from your tax refund can be a great way to set yourself up for a better financial future. If you are expecting a pretty decent tax return this year, here are some smart ways to make your money work harder for you.

Invest for Emergencies

If your transmission in your car went out right now, would you be able to afford to replace it?

Did you know it is recommended to have between three and six months of living expenses in a liquid savings account?

If you do not have any type of emergency fund, using your tax return to start one might be extremely beneficial for you. 

https://www.smartaboutmoney.org/Topics/Insurance-and-Taxes/Tips-for-Filing-Taxes/Smart-Ways-to-Use-Your-Tax-Refund

Instances like this are exactly what an emergency fund is for. You don’t need to save all of your tax refund for emergencies, but it is best to put back as much of it as you can.

Pay Off Debt

Credit cards typically have a high interest rate making them hard to pay off. Instead of booking a vacation with your tax return—which might not be that fun right now anyway—pay off some of your debt instead.

  • Start with your debt that has the highest interest rate, such as your credit card balance that seems to never get any lower.
  • Getting rid of this type of debt will save you money in the long run by avoiding all of the interest charges. 
  • If you don’t currently have any credit card debt, or you don’t have an interest rate/balance that is manageable, consider paying down the balance of your car or your student loans.

Both of these actions will save you money on interest as well.

Invest for Retirement

There is no such thing as too much money when you are heading into retirement. Sure, you might already have a retirement plan, like a 401(k) where your employer matches your contributions. However, you can also open an IRA to increase your savings for the future. 

There are two types of IRA accounts: Roth and Traditional. When you put money into a traditional IRA, you get an upfront tax deduction. The money will grow tax-deferred, but you will need to pay taxes on the money when you start taking money out.

https://www.moneycrashers.com/what-to-do-with-your-tax-refund-money/

When you put money in a Roth IRA, there is no immediate tax deduction, but when you start taking money out in the future, it is tax-free. There are no required withdrawals with a Roth IRA, meaning there is some more flexibility in it. 

There are limits to keep in mind when it comes to IRA accounts and 401(k) accounts.

If you are under 50, there is a maximum contribution of $6,000 in an IRA and $19,500 in a 401(k). If you are over 50, there is a maximum contribution of $7,000 in an IRA and $26,000 in a 401(k).

Put Money in a College Fund

If you are a parent, you might be wondering how you can save for your child’s college education. The best way to do that is with a 529 college savings plan, which is similar to a Roth IRA.

Your money will grow tax-free, and as long as it is used toward education.

There are two different types of 529 plans. The first is a college savings plan and the second is prepaid tuition. 

The college savings plan is similar to a Roth IRA account because you invest after-tax money in mutual funds. This plan will fluctuate in value depending on the value of the investments. 

The 529 pre-paid tuition plan will allow you to pay for all or part of in-state tuition at a public college. They might also be able to be transferred to an out-of-state college. There is also an option for a private college prepaid plan.

Increase Your Down Payment

If you are saving to buy your first home, your taxes can increase your down payment. This can help save you from expensive private mortgage insurance and can also reduce the overall mortgage that you take out.

If you already own a home, you can use your refund to do some improvements around your home. Improvements and renovations can help increase the resale value of your home.

Even if you aren’t planning on selling your home any time soon, improvements are always a good idea. Renovate that bathroom or finish the basement, whatever your house needs!

Make a Donation

Donating is a great way to invest in something that you are passionate about. Focus on finding charities that do the best for people.

Before you donate any money to a charity, do not be afraid to ask the charity’s representative some important questions. Ask them how they spend the money that you are giving them and how they are changing the world.

There are so many charities that are worth donating to. The representatives will be happy to answer those questions for you.

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The Best Way to Invest a Tax Refund in 2021

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A tax return can be used for more than just buying your girlfriend a Gucci bag. It can be a great way to get yourself financially ahead. All you have to do is make it work for you.

If this is something you are interested in doing, here are a few smart financial investments you can make with your 2021 tax refund.

Pay Off High-Interest Debt

Typically, credit cards have a high interest rate which can make it seem impossible to pay them off.

Instead of booking a vacation or buying a new TV with your tax refund, take a shot at some of your debt instead. And, start with your debt that has the highest interest rate. Getting rid of these debts will save you money every month.

If you don’t have any credit card debt, use your refund to pay down your student loans, car payment, or mortgage.

Max Out Your 401(k) Contributions

Whether you are saving with a 401(k) offered through your employer or you are saving in an IRA, the more you put into your plan the less tax you will have to pay on it.

There are contribution limits, so it is important to keep that in mind. However, maxing out your contributions early in the year can put more money in your pocket each paycheck.

If you are under 50, you can put a maximum of $6,000 into an IRA. If you are over 50, you can put a maximum of $7,000 into an IRA.

A 401(k) has larger contributions, up to $19,500 if you are under 50 and up to $26,000 if you are over 50.

Fund Your Health Savings Account

With a health savings account (HSA), you can set money aside for medical expenses. This money can be used immediately or invested and used in the future.

HSA contributions are made with pre-tax money, so whatever you put in this account will not be taxable by the IRS. 

Eligibility for an HSA depends on your insurance plan. Here are the basics:

  • If your deductible is $1,400 or more as an individual with an out-of-pocket maximum of $7,000, you will be able to qualify for an HSA.
  • If your insurance plan is for a family, your deductible will need to be a minimum of $2,800 and the out-of-pocket maximum will need to be $14,000.
  • An individual can contribute $3,600 if they are under 50 or $4,600 if they are over 55.
  • Family plans can contribute $7,200 when the policyholder is under 50 or $8,200 if they are over 55.

Down Payment or Home Repairs

If you have been saving to buy a house, consider using your refund to increase your down payment.

This can save you money on your overall mortgage amount and your monthly mortgage payments. 

If you are already a homeowner, consider using your refund to fix up some things that have been put off due to lack of finances.

Replace the leaky faucet in the bathroom or replace your roof. Using this money for improvements can also increase your home’s resale value if you decide to sell your home in the future.

Invest in the Stock Market

If you would like to do something for your future besides putting money into a retirement fund, consider purchasing stocks.

https://investorjunkie.com/investing/tax-return-refund/

The market is known historically for providing better returns than both savings accounts and Treasury bonds. However, it is important to know that stocks aren’t secure, and returns are not guaranteed.

Stock prices fluctuate and the market can be risky. Financial advisors often do not recommend investing in the stock market if you are trying to save for the short-term. The market is much better for saving for long-term financial goals. 

You can invest in individual stocks or mutual funds. Mutual funds are bundles of stock, usually purchased through a robo-advisor or a broker.

Robo-advisors can offer low-cost investing options for those who are interested in managing their investments themselves.

It is also important to remember that investments are not under the protection of the Federal Deposit Insurance Corporation like a checking and savings account would be. If the stock market drops unexpectedly, you can lose your money. 

Open a Credit Card with Benefits

If you are debt-free and pay your credit cards off at the end of every month, you might want to invest in a card that gives you the perks you are looking for in a card.

This would be especially beneficial if your other cards do not offer benefits at all, or just not the ones you are looking for.

Some credit cards require you to pay an annual fee, but they will usually supplement that fee with travel rewards or cash-back rewards.

The perfect card should be able to save you more money in the long run, even taking into account the cost of maintaining the credit card.

Donate Money or Goods to Charity

If you are well off financially and can’t think of any use for your refund, consider donating to a charity of your choice.

Before choosing an organization, you should ask the charity questions about how they spend the money you are donating and what the organization is doing to change the world.

There are so many charitable organizations that are worth donating to, so don’t be afraid to ask questions about them and how they use the money for good.

Some charities will also accept donations in the form of goods instead of money. By donating goods to a registered charity, you can help them get things they desperately need quickly. 

Fund Your Child’s College Savings

If you are a parent, you might be interested in ways to pay for your child’s college education. Consider putting your tax refund in a 529 college savings plan.

As long as the money is used for education, you won’t be taxed on it. In some states, you might even be eligible for a tax break for your education contributions. 

With a 529 college plan, you can invest your money for added growth. This is a great way to achieve your savings goals for your child’s future college education. You can even set up recurring, automatic contributions as low as fifteen or twenty-five dollars each month. 

Image credit: Karolina Grabowska