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13 Smart Uses for Your Tax Refund


Apr. 20, 2018 Kiplinger

If you have a refund check coming your way, consider using it to bolster your personal balance sheet. The average refund is usually around $3,000, and most people receive the money within three weeks of filing their returns. That’s a nice chunk of change. Here are 13 good things you could do with the money.

Pay off Your Credit Card Debt

Using your refund to pay off a balance with an 18% interest rate is like earning 18% on your investments — an incredibly valuable use of the money. See Best Ways to Pay Off Every Type of Loan for strategies to help you set decide which debts to tackle first.

Rebuild Your Emergency Fund

It’s a good idea to keep three to six months’ worth of expenses in an emergency fund, so you don’t land in debt or have to raid retirement funds if you have unexpected expenses. If you’ve had to tap the fund over the past few years, you can use your refund to help build the account back up. Keep the money easily accessible in a money-market account or savings account that earns some interest.

Boost Your Retirement Savings

You can contribute up to $5,500 to a Roth IRA for 2018 (or $6,500 if 50 or older) — and withdraw the money tax-free in retirement. You can contribute the full $5,500 as long as your income falls below $120,000 if you’re single, and $189,000 if married filing a joint tax return. You can make a partial contribution if you earn less than $135,000 if single or $199,000 if married filing jointly.

If you work and your spouse does not, you can also contribute to a Roth IRA in his or her name if your joint income is within those limits. Even if you’ve retired from your main job but are working part-time, you may be able to contribute to a Roth. If you earn too much for a Roth, you can contribute to a nondeductible traditional IRA, then convert it to a Roth.

Fund a Taxable Account

Use the extra cash to buy shares in a mutual fund or stock you’ve been considering — but may feel is too risky for your IRA or not available in your 401(k) plan. Consider one of our 25 Best Mutual Funds for Low Fees for your portfolio. Before you settle on individual stocks, see The 50 Best Stocks of All Time.

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