It’s spring and that means warmer weather, greening grass and budding flowers. It also marks the end of tax season and for most, a tax refund.
What to do with that refund? The average refund is around $3,000. Remember, it’s your money – what you overpaid in federal and state taxes. It should be put to good use. Here are some suggestions:
- Pay off debt
- Boost retirement funds
- Save it
- Build a college fund
Paying off or paying down debt is one of the best uses of your tax refund. If you have high credit card balances, paying it down or off can result in big savings over time. Consider that most credit card interest rates are 12% and higher, chipping that balance down can be a money saver.
Boost your retirement fund by putting some or all of your refund into your IRA each year. You can contribute up to $5,500 and up to $6,500 if over age 50. You’re eligible to do this if you’re single and earn under $114,000 annually, or, if married and filing jointly with an annual income under $181,000.
Saving for a rainy day is always a good idea. Put some of that refund into an emergency fund, such as a saving account. Although savings accounts earn very little interest these days, they are safe and provide accessible cash.
Building a college fund for the kids can never be started too early. A 529 account is tax free for both federal and state. Although Massachusetts does not offer a state income tax deduction for contributions to this account, it is still a good way to start saving for your child’s college years.
The suggestions here depend on your financial situation and the amount of your refund. Avoid splurging. Resist buying that big TV or taking a cruise. Consider, instead, fixing up your home or, just put in the bank.
Use your refund wisely!