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7 Smart Ways to Use Your Tax Refund

Got that tax refund in the mail yet? Rather than blow it on something frivolous, put it to good use to get ahead for the coming year. Here are a few ways you can use that return wisely.

  1. Pay off high-interest credit cards. If you pay off a balance carrying a 17% interest rate, it’s like you’re earning 17% on your investments, says Kiplinger. Pay them down and get peace of mind knowing you’re not throwing good money after bad every month.
  2. Build up your emergency fund. This fund should cover between three and six months of expenses to use in case you incur medical expenses, have to repair your car, or replace an appliance. This way, you don’t have to dip into your savings or retirement fund for that money. Keep the emergency money liquid in a money market or savings account so you can get to it quickly when you need it. Replace the money you use each year with some from your tax refund.
  3. Contribute to a Roth IRA. In 2017, you can contribute up to $5,500 or $6,500 if you are 50 or older. Then come retirement, you can withdraw that money tax-free. Put in the full $5,500 if your income falls below $118,000 if single and $186,000 if married. You could also make a partial contribution if you earn less than $133,000 if single or $196,000 if married. Do you work but your spouse doesn’t? You are still able to contribute to a Roth IRA in your spouse’s name if your joint income falls within those parameters.
  4. Buy shares in a stock or mutual fund. If you’ve had your eye on a stock or mutual fund, now’s the time to get in. Ask your broker for recommendations on low-fee funds, but do all your own research. Getting burned by your broker can result in big losses, so keep the number of a FINRA attorney
  5. Save for your kids’ college. Open a 529 account and use the money for college tax free. You may also be able to claim a state income tax deduction while you’re at it.
  6. Save for a vacation. Rather than use your credit cards and go into even more debt, put that money toward a well-earned vacation.
  7. Start a holiday gift fund. Christmas may seem far away right now, but it will be here before you know it. Instead of using credit cards, you’ll have a nice chunk of change come December to spend on gifts.

Decide if you will spend your return on short-term goals like a trip or long-term goals like college or buying a home. Whatever you do, make wise decisions about how you invest or save. Talk to your broker, know a securities fraud attorney, and do your homework on rates, fees and more.

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