The Five Best Things To Do With Your Tax Refund

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You’re getting a tax return, are you? Well, good for you, citizen! Do you know what you’re going to do with this windfall? If you don’t have a plan, you may wind up frittering it away on intangibles like dining out, vacation travel, going to the movies or a concert, that will leave you with nothing but some pleasant memories to show for it. However, if you’re of a more practical bent, you could wind up spending it on seemingly practical choices like a tank of gas, new clothes, home upgrades or repairs or any of the myriad items that you seemingly need. Have you considered though, that you could use that tax refund money to actually improve your financial situation?

Pay Off/Pay Down Your Credit Card Debt

If you are carrying any credit card debt the best thing you can do to improve your finances is to pay it off as soon as possible. Even if you have good credit, and your interest rate is only 10.29%, (which according to CreditCards.Com is about the best you can do in the current economy), you’re still better off paying that balance completely rather than paying that money to the credit card company each month.

  • For most people, since your interest rate is probably around the national average of 14.95%, it’s an even better idea to pay off or pay down your credit cards.

  • Many people currently have bad credit, so here are even more compelling reasons to pay off your credit cards since the interest rate on cards for people with bad credit average 23.64% nationwide.
  • Paying off high-interest credit card debt is like earning the equivalent amount that you’re paying in interest as the return on an investment. Once you’ve paid off those high-interest card balances, you can work on getting another card with more favorable terms since you’ve shown you can be responsible with your finances.

Add To Your Retirement Savings

It’s always a good idea to put more money aside for your retirement, especially if you do it in ways that provide significant tax advantages.

  • You can put away $5,000 a year in an IRA if your income as a single person doesn’t exceed $114,000, or if you’re married, with a joint tax return of $181,000. Additionally, you can contribute $6,500 a year, if you’re over 50. That contribution limit is phased out in increments out if you’re single and you earn between $114,000 and $129,000.
  • With married couples, the same incremental phase-out applies for joint income between $181,000 and $191,000. Couples where only one spouse works are allowed to make contributions to a Roth IRA in the other spouse’s name.
  • If your earnings are too high to permit a contribution to a Roth IRA, you are allowed to contribute to a nondeductible regular IRA, which can you convert to a Roth IRA later for the tax benefits.

Contribute To A Taxable Investment Instrument

You might consider taking the extra cash from your tax refund and investing in a mutual fund or a promising stock that might be too speculative for your IRA, or unavailable to the 401(k) you’re working with. The canny analysts at Kiplinger have compiled a list of 25 no-load mutual funds that boast decent returns that can be a good place to park your extra cash for long-term investments. As for stocks to watch and invest in, the possibilities are limitless, but once again, Kiplinger’s recommendations are on display in their regularly updated Stock Watch columns.

Be Certain Your Have Enough Of The Right Kind Of Insurance Coverage

You may think that if you have life insurance, either term life or a whole life insurance policy, that you’ve adequately provided for your family. There are other insurance options to consider, especially if you live in a region of the country that is afflicted with dangerous weather conditions like hurricanes, tornadoes, earthquakes, seasonal flooding, or mudslides. Did you know that it would only cost you around $50 to add between $10,000 to $20,000 in sewage backup coverage, something that your homeowner’s policy probably doesn’t cover?

  • In case you live somewhere that’s prone to power outages due to downed power lines or other factors, it might not be a bad idea to invest in a backup generator. The cost of a 6.5-kilowatt generator is only between $800 or $1,000, depending on where you buy, and can be less if you buy used or assiduously shop sales. This would need to be turned on manually in the event of a power failure, but you can purchase a standby generator that kicks on automatically for $4,000 plus an additional $3,500 for installation and modifications to your existing electrical system. That’s a big bite, but assistance from the federal government can help you defray the costs.
  • For additional suggestions about ways to prepare for a variety of disasters, please visit: Gov. It’s chock-full of good suggestions and links to other websites like FEMA.Gov, and it can be accessed in a number of different languages, including Spanish.
  • Have you considered adding Liability Insurance to your existing policy? It may cost you less that $300 per year to add up to $1,000,000 in liability coverage, over and above your homeowner’s policy, to prevent you from going bankrupt if someone is injured in your home.

Build Up Your Child’s College Fund

Anyone who has children most likely wants their children to be able to attend college. However, if you’ve been paying any attention at all to the news, you should know that college costs are one of the fastest-rising expenses out there. According to an article published on the Huffington Post website, between 1980 and 2012, college tuition has increased 12-fold, that’s an increase of 1,120 percent, or more than 4 times the rise in the consumer price index. That’s enough to give any parent pause when considering college for their offspring, but fortunately, you can start investing for your child’s future college attendance through a 529 plan that offers significant tax benefits, and will ensure that you’ll be able to fund your child’s college tuition, (at least in part). For more information about setting up a 529 plan, check out this article from the Wall Street Journal.

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