Last Updated: Jan 19, 2019

5  Ways to Make the Most of Your Tax Refund

Nearly 70% of Americans received a tax refund last year¹, and the average amount was $2,255. This year, you may also receive a tax rebate as part of an economic stimulus package from the federal government. Consider the following strategies,
listed in order of priority, for making the most of a
tax refund or rebate.

  1. Maximize any 401(k) match. Company-matching contributions to a workplace retirement plan, if offered, provide a guaranteed return on your savings. If you don't already take full advantage of your company match, consider having enough money withdrawn from your paycheck to do so. you can use money from your tax refund to offset the decline in your take-home pay.

  2. Pay down high-interest debt. Say you pay $100 a month on your credit card, which has a $5,000 balance and charges 15% interest. You'll pay $2,600 in interest before eliminating the debt in six years. Devote a $2,000 tax refund to that debt this year and you'll dispatch the debt in half the time (assuming you continue making $100 monthly payments). And You'll save more than $1,900 in interest.

  3. Establish an emergency fund. Holding three to six months' worth of your regular expenses in short-term investments such as a money market fund or certificate of deposit will enable you to handle unexpected costs.

  4. Invest in an IRA. You can arrange for the IRS to deposit your refund directly into up to three accounts. If you put the money in an individual retirement account (IRA), it could grow to 10 times its original value in 30 years, assuming an 8% annual return.

  5. Invest in a college fund. College savings accounts such as a state-sponsored 529 plans offer tax-free investment growth as long as withdrawls are used for qualified education expenses. A $2,000 refund saved in such a plan today could more than double in 10 years, aassuming an 8% rate of return.
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