What To Do With Your Colorado Tax Refund in 2024
You’ll be getting a refund of at least $800 this year, shortly after you file your individual state tax returns.
Married couples will get a refund of $1,600.
It’s called the “TABOR Refund”. And it will come in addition to any federal tax refunds you may be entitled to this year.
The reason: the State of Colorado overcollected its sales tax revenues. So your refund represents your portion of the state surplus being returned to the taxpayers.
So what are the best, most tax-efficient things you can do with that extra $800 to $1,600?
Here are some tax-smart, common-sense ideas:
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COLORADO HEALTH INSURANCE
Contribute to a Health Savings Account
Dollar for dollar, the health savings account, or HSA, is the single best savings and wealth accumulation tool available to individuals in the U.S. tax code.
No other savings vehicle comes close.
First, Every dollar you can contribute up to the annual maximum for the year reduces your taxable income on a 1:1 basis.
Second, growth in your HSA is tax-deferred, like a traditional IRA. And any money you take out to pay qualified medical expenses in the future is tax-free. So that’s a second round of tax savings.
Try not to use the money for anything other than medical expenses. The IRS assesses a 20% penalty on withdrawals for anything other than qualified medical bills.
Third, any money you don’t need for medical expenses becomes available, penalty free, when you turn 65.
Fourth, you don’t have to itemize. You can take advantage of tax-free HSA contributions even if you take the standard deduction.
Fifth, there are no income limits on HSA contributions. You can contribute no matter how much income you make.
As of 2024, you can contribute up to $4,150 for self-only plans, or up to $8,300 for families.
Those over 50 can contribute an additional $1,000 per year in “catch-up” contributions.
To be eligible, you must be covered under a qualified high-deductible health plan (HDHP).
LEARN MORE: How To Open an HSA in Colorado
Don’t have an HDHP? If you are self-employed, an independent contractor, or own a business, we may be able to help you become eligible to contribute to an HSA. Contact an HSA for America Personal Benefits Manager and ask about combining health sharing with an HSA MEC.
Increase 401(k) Contributions
This can be a great move if your employer matches part of your 401(k) contributions.
With an extra $1,600 in your bank account from your tax refund, you can go to your employer and have them increase your 401(k) contribution by an extra $133.33 per month.
That money comes out of your check before federal and state income tax and before payroll taxes. If your employer matches part of your contributions, it’s a no-brainer.
This is an especially good move if you still need to top off an emergency fund.
Pay Off Credit Card Debt
Paying off high-interest credit card debt is one of the smartest moves anyone can make.
According to WalletHub, the average credit card interest rate on existing accounts is a staggering 21.47%, as of January 2024.
Personal credit card debt isn’t even tax-deductible.
It’s almost impossible to get ahead with that kind of anchor dragging you down.
Paying down credit card debt generates an easy return on investment of around 20% to 29%.
With no risk, and no taxes.
That kind of ROI is tough to beat.
Buy Life Insurance
If you have a family – or you intend to have a family in the future, owning life insurance is a must.
Most peoples’ single greatest asset – especially early in their careers – is their future ability to earn an income to support their family.
Your loved ones are counting on you.
For those young and in good health, life insurance premiums are cheap. Losing a breadwinner is devastatingly expensive.
If you need life insurance, contact a Personal Benefits Manager today. Let’s get something in place as soon as possible, before your health situation changes. Which could happen at any time.
If you already have a permanent (cash value) life insurance policy, contributing your tax refund as extra premium is a great tax-advantaged way to make the most out of some extra cash.
Get a free term life insurance quotes
Fund a Roth IRA
A Roth IRA is another great tax-advantaged savings vehicle.
You don’t get an immediate tax deduction when you contribute to a Roth IRA.
But any money you do contribute grows tax-free, and you can take the money out in retirement tax-free once you turn 59 1⁄2.
The deadline for contributions for tax year 2023 is April 15th, 2024. So don’t delay filing so you can get the cash in hand by the deadline. Otherwise, you can still contribute for 2024.
Build Your Emergency Fund
Studies show that most American households would have trouble paying an unexpected $1,000 bill without having to go into debt.
That’s not a good position to be in.
A good rule of thumb is to have at least three to six-months’ worth of basic expenses in a savings account, money market account, or someplace else that’s safe and easily accessible in an emergency.
If you’re living paycheck-to-paycheck, building your emergency fund should be top priority.
You can use your HSA for part of it. But it shouldn’t be the only place you’re storing some ready cash for a rainy day.
Maintain Your Vehicle
Oil is cheap. Engines are expensive.
Your TABOR refund is your chance to take care of all that vital car maintenance you may have been putting off.
Get that oil changed. Get your transmission serviced. If you have a timing belt, change it at the recommended mileage. Replace those bald or worn tires.
A few hundred dollars invested now will save you thousands of dollars in the future.
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COLORADO COST-SHARING
Start a Business or Side Hustle
Even if it only brings in a few hundred a month, owning your own business gives you a lot more flexibility and opportunities for tax savings.
And it may also help you get qualified to make HSA contributions – even if you are currently enrolled in a health sharing plan, rather than a HDHP traditional health insurance plan.
For more information on how you can leverage business ownership, self-employment, or income from as an independent contractor into eligibility for the best savings tool in the tax code, contact a Personal Benefits Manager.
For Further Reading: HSA Contribution Limits in Colorado | How To Shop for Health Insurance in Colorado | Using Price Transparency Rules to Compare Hospital Prices in Colorado | 2024 HSA Eligibility Criteria
Christine Corsini is a health insurance and medical cost sharing expert, and a Personal Benefits Manager at ColoHealth. Her goal is to help people embrace life’s amazing possibilities by staying healthy, saving money, and making the best decisions when it comes to healthcare.
