How to maximize your tax refund

Now that you’ve optimized your tax situation and have completed your income tax return, you may be wondering what would be the smartest way to use your tax refund. Let’s take a moment to consider the different avenues that will help you make the most of it.

1. Get a head start on your RRSP

Investing your tax refund in your RRSP will give you a head start by increasing your retirement savings while reducing your tax rate for the current year. This is also the time to take advantage of your unused contribution room, especially given that your money will have more time to grow when you contribute at the beginning of the year.

2. Prepare to purchase your first home with the FHSA

Like an RRSP, contributing to an FHSA reduces your taxable income and could entitle you to a tax refund. All the returns generated in this plan are non-taxable for withdrawals made to purchase your first home.

Whether you plan on buying property in the short, medium or long term, an FHSA has many benefits. You can contribute up to $8,000 per year, for a lifetime maximum of $40,000.

3. Contribute to an RESP

It’s important to put money aside for your children or grandchildren’s studies to help them pursue their post-secondary education. When you invest your tax refund in an RESP, you make the most of every dollar by maximizing the generous government grants available to you, which can reach up to 30% depending on your province of residence.

Everything you have in mind is possible, thanks to RRSPs, TFSAs and FHSAs.

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4. Create an emergency fund with your TFSA to reduce your financial anxiety

Building or consolidating an emergency fund using your tax refund is a smart choice to help you prepare to face the unpredictable or a difficult financial situation. We usually recommend having the equivalent of three to six months of your current expenses on hand to give you a safety net in the event of a mishap.

Using your tax-free savings account (TFSA) to build an emergency fund is an excellent strategy. It’s a flexible way to generate tax-free and easily accessible returns. Withdrawing is easy and tax-free, and you can re-contribute the amount you withdrew the next year.

The contribution limit for 2024 is $7,000, in addition to the contribution room that has accumulated since your 18th birthday.

5. Pay off your debts and feel better

For good financial health, it’s wise to use your tax refund to ease your financial burden and pay off your debt, either in full or in part. You’ll quickly realize just how much you can save on interest costs. Concentrate first on paying off your debts with the highest interest rate, such as credit cards or lines of credit.

6. Bonus: Treat yourself

If you’ve received a tax refund, it might be because you’ve been conscientiously and consistently saving all year long and have been keeping your finances in order. Consider using some of your tax refund to treat yourself. After all, you deserve a little something for keeping up with your good saving habits.

It’s all about balance. Give yourself the satisfaction of saving, but feel free to splurge a little!

Obviously, your situation is unique. A financial security advisor will be able to guide you regarding what actions to take based on your personal and financial situation.