Faith and Finance
Did you know that the average tax return for Americans was about $3,000 last year? You might already have a plan for your refund (if you’re getting anything back at all), but if you haven’t decided what to do just yet, consider a few of these options.
1. Pad Your Emergency Fund
A few thousand dollars can really bolster your emergency savings and provide peace of mind for those unexpected bills. Don’t let your money earn pennies in interest; find an online bank that pays a nice rate on savings accounts. The ING Orange savings account is paying 1%, about 10x’s that of local bank savings rates I’ve seen.
2. Start a business
A refund check of $2,000-3,000 can go a long way in starting a small business, especially an online venture where you have little to no overhead. Check out the site www.entrepreneur.com for some great business ideas that cost less than $2,000. Some examples include:
3. Fund an IRA
You can use the extra funds to increase your Roth or traditional IRA for the year. In fact, if you contribute before April 15, you can apply that contribution towards 2010 and still make a contribution for 2011. If you use it to fund your IRA for 2010, be sure to tell your tax preparer or complete the appropriate areas if you’re using Turbo Tax.
4. Give Some Away
Bless someone directly by providing a student with a scholarship or by sponsoring a youth group kid for a mission trip. The ways you can give and be generous are almost endless, so be creative if you’re looking to bless others through your unexpected tax return.
5. Increase your 401(k) Contributions
Although you may not be able to contribute to your 401(k) or 403(b) outside of your payroll deductions, you can live on the tax return and tell your employer to apply the next few paychecks to your retirement plan. This is a nice way to increase your 401(k) – though it’s often recommended to max out a Roth IRA before you contribute to your 401(k) (unless, of course, your employer has a match – then you should take advantage of that first).
6. Spend It
I can’t leave this out of your options. You can always use the funds for something you’ve wanted to do for a while, like take a vacation. Of course, you’ll hear that it’s best to budget for things like a vacation, but it’s awfully tempting just to wait an use a tax refund to go on a trip.
7. Pay Down Debt
Sure, a few thousand dollar tax return may not seem like it can do much to pay down a large load of student loan or credit card debt, but every bit can help. Just think, if you can even knock one school loan payment of $50 from your monthly obligations, you can apply that $50 to other loans to help pay them off even quicker.
If the idea of getting a tax refund bothers you, be sure to check with your employer and adjust your tax withholding using a W-4 form. For a better idea of what you should withhold in taxes, use this IRS withholding calculator to estimate your projected tax liability.
Did you get a refund this year? What do you plan on doing with it?
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