This is the second part of a series on the child tax credit, the first part took place on Friday July 16th.
AMES, Iowa – The expanded amount and eligibility for the 2021 Child Tax Credit, combined with the monthly advance payments that begin in July, offer families the opportunity to improve their overall financial well-being, according to Barb Wollan, specialist of Finance, Iowa State University Extension and Outreach. Wollan urges local families to plan the use of funds before they arrive.
For six months, from July to December 2021, most families will receive a payment equal to $ 250 per month for each child who will be under 18 on December 31, 2021. The amount is $ 300 per month for children under the age of 18. 6 years old.
“These extra funds can have a big impact on a family’s financial security and perhaps help reduce the stress they might be feeling if they are currently behind on their bills or running out of income.” notes Wollan, specialist in family finance.
Before making any special purchases, Wollan encourages families to focus on increasing their financial security and suggests four main strategies:
1. Use the funds to keep up to date and / or stay on top of all household expenses (rent, utilities, child care, etc.).
2. Build a savings cushion to provide funds for unforeseen expenses such as repairing a car or replacing household appliances or layoffs. Wollan suggests an initial savings goal equal to one month of income, and when that is achieved, gradually building it up to an amount equal to three to six months of income or more.
3. Save in advance for future planned costs such as back to school, vacations or property taxes.
4. Pay off debt, especially high interest rate debt.
However, Wollan says it’s often wise to build a savings cushion even before all debts are paid off. Without these savings, every unforeseen expense simply creates more debt and more stress.
For families who are already very secure and stable, the four suggestions above may not apply. In this case, says Wollan, “This extra income offers a great opportunity to invest for long-term goals such as raising children or retiring. Even small amounts of money can grow dramatically over time.
For example, if a 35-year-old invests $ 250 in a tax-advantaged retirement account that earns 6% per year for just six months, that amount will exceed $ 11,000 by the time the person turns 70. If the person is able to continue investing $ 250 per month until the age of 70, the value of the account will rise to over $ 92,000.
A place to start for those wishing to invest in their children’s education is to check out the Iowa 529 tax-advantaged account at www.collegesavingsiowa.com. For those who wish to work towards retirement, a first step is to ensure that they take advantage of any available matches offered by their employer pension plan. For more information on using the CTC Advance to move forward, visit www.irs.gov or contact your county ISU Extension and Outreach office.