Three Smart Ways To Spend Your Tax Refund

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Three Smart Ways To Spend Your Tax Refund

By The BIDaWIZ Team on November 30th, 2012 at 8:15 am

As we approach the final month of the year, we need to look ahead to our 2013 budget. Your tax refund for the 2012 tax year should be heading your way about 7 to 10 days after you e-file your tax return, if you’re eligible. How exactly do you plan on spending your tax refund? We have some wise suggestions.

Paying down credit card debt
The most costly debt you will earn in life is consumer credit card debt as rates are typically 15-20% annually, if not more. By using proceeds from your tax refund to pay off credit card debt, you’re reducing your interest in the future, which is usually the most attractive option. If you think it’s smarter to put money into the stock market, you’ll need to earn 15-20% annually on those investments for that choice to make more sense than paying off credit card debt.

Putting a down-payment on a home or improvement
You can certainly start building equity in the most valuable asset you’ll accumulate in life, which is your home, or at least for most people. If you already have a home, you can put money towards improvements as that will increase the value and the cost basis for when it’s time to sell later on down the road.

Retirement account contributions
You can sock away money into a 401K or IRA for tax deferred treatment. In many instances, a Roth IRA is also attractive as the principal grows tax-free and there are no required minimum distributions as is the case with a traditional IRA and 401K. Also note that starting in 2013, employees that participate in a 401(k) or 403(b) plan, can contribute a maximum of $17,500, which is up from $17,000 in 2012. As for IRAs, the maximum contribution increases by $500 in 2013 to $5,500. This applies to a Roth IRA too.

More questions? Browse answers or ask tax refund questions online or find an accountant online.