What should I do with my tax refund?
When people get a tax refund, they tend to average getting back about $2000. Of course this is an overall average, and some receive more, while others receive quite a bit less. When you are lucky enough to receive money back, there’s always a question of what to do with it. Should you spend it or save it, invest it or pay down debt?
Change Withholding Status
The first thing you should probably do if you know you’re going to receive a tax refund is to change your withholding status. A lot of people look at the money they receive back as a “savings” plan. You aren’t getting any interest on those savings when the government owes you money. If you’re worried that you might then withhold too little, drop the extra money you’re now making on your paycheck into a savings account you don’t touch. It will earn interest, and if you do end up owing a bit on taxes, you have money saved to pay for it.
Pay Down Debt
As for what to do with this year’s tax refund, if you do have debt, especially on high-interest credit cards, a tax refund could repay some or all of that debt, and it will still be saving you money.
Plan for Retirement
You could also use the money to boost your 401(k) contribution rate in 2011, or fund a Roth or Traditional IRA. It may not seem like much; however, the more you invest now, the more you’ll likely have for retirement. Opening a CD is another great way to save. We offer CDs that range from 3 months to 5 years, with a minimum deposit of $500. We even have special CD rates. Rates do change frequently. Go here to check the latest rates. If you’re looking for a more long-term solution, mutual funds are a great option. Contact one of our investment representatives for more information.
A tax refund can give you the means to start a savings or money market savings account . This puts your money to work for you, and provides you with backup funds should you need them.
One suggested plan is to commit half of your tax refund to savings and half to a special purchase. Even half of $2000 gives you a considerable amount to spend on something fun, something special or something meaningful. Meanwhile, you’re also adding to savings, money market, or investment accounts, which will benefit you in the future.