Assuming you're lucky enough to get a refund check after tax-time, what's the best thing to do with it? We asked a variety of financial planners, advisers and private individuals. Their suggestions follow.
Not everyone agreed "lucky" was the right word for people who get a refund.
Asked what she'd do if she got a refund check, Maria Brisbane, a Merrill Lynch advisor to high net worth families and wealthy individuals, says, "I'd ask why I got one. Why was I paying too much in taxes in the first place? Getting a refund check annoys me."
She tells ABC News that rich people, being lawyered-up and tax-advised to the hilt, seldom get a refund check because they don't pay a dime's more tax than they have to.
For mortals of more modest means, here are seven ways to spend whatever Uncle Sam returns to you.
|Begin With the Basics|
Timothy Wyman, a lawyer, certified financial planner and owner of the Center for Financial Planning in Southfield, Mich., suggests you treat the refund like any other income.
"It may not sound sexy," he says, "but I'd put 20 percent into savings and spend the rest."
He suggests paying off credit card debt and any other debts charging "loan shark rates -- you know, like 17 percent. There's nothing you can do that's better than paying for past ills and bad decisions. A refund may allow you some relief there."
John Kvale, a registered investment advisor and owner of JK Financial in Dallas, recommends shoring up your emergency funds -- if they need it. "You should have three to six months' worth of savings that you can tap in an emergency," he says. "If you find a hole there, add to that."
|Frontload Your Kids' Education|
Add to your children's college funds, says Kvale.
"Take a peek at those," he says. "Are they on track? If they need money added, go ahead and add it."
In Michigan and other states that permit so-called 529 contributions, a married couple can deduct the first $10,000 of their contribution to a college fund.
|Reduce Future Taxes|
"Ask yourself: What can I do to reduce my tax liability in future years?" advises Wyman. Kvale seconds that: "If you're not maxing out your 401(k), consider increasing your contribution and using the refund to help cushion the monthly cash flow. It'll help you with your next year's taxes."
If your 401(k) already is maxed out, he says, consider opening an IRA or Roth IRA or some other long-term savings vehicle for your retirement.
Many tax payers, says Barbara Weltman, author of "J.K. Lasser's Tax Deductions for Small Business" and publisher of the newsletter "Big Ideas for Small Business," says small business owners can put their refunds from last year to good use by using them to pay estimated quarterly taxes for this year.
|Pay Down Longer-Term Debt|
Kvale says you should review any high interest debt you may be carrying, beyond your credit cards.
"Have you got, for instance, a high interest-bearing auto note -- anything hanging out there?" he says. "Maybe now's the time to pay it off, rather than three years from now."
|Donate Now, Designate Later|
Another way you can reduce next year's taxes, says Wyman, is to contribute to a donor advised fund (also known as a charitable endowment).
"Think of it as the poor man's charitable foundation," he says.
All the major money managers -- Fidelity, Vanguard, Raymond Janes, etc. -- offer them, he says. The beauty of such a fund is that you can enjoy the tax advantage immediately, while you can postpone having to decide to what charity or college or other recipient your gift ultimately will go.
|Be Healthier for Less|
Says Barbara Weltman, "If you don't have a health savings account, you also can use the money to start one." For someone who's covered by a high deductible health plan, she says, contributions (up to set dollar limits) can be made to HSAs (health savings accounts) to pay certain health costs not covered by insurance, FSAs (flexible spending accounts, offered by employers), or otherwise.
A refund can be applied toward 2013 contributions (if the person had a high deductible plan for at least all of December 2013) by April 15, 2014, and it's deductible on the 2013 return. Or the refund can be applied for 2014 if such requisite health plan is in place. Information about HSAs can be found IRS Pub. 969, she says.
The recipient of a refund, says John Kvale, could also use it to enhance his or her health by spending it on yoga lessons or a gym membership or on a fitness program.
|Splurge! Go Crazy.|
If you have any refund money left over after following the advice above, says Kvale, you should treat the remainder as what he says his mother always called rat-hole money: "Set it aside for gifts or for vacations. Every year, it seems, holidays and vacations cost more." Then again, he says, you can always grab your significant other and take him/her out for a nice dinner.
"Enjoy," he advises. "You deserve it."
Open the windows of your imagination. Scott Dingwell, a San Francisco expert on index funds (and plainly a guy with plenty of imagination), suggests you do the following, in order:
"Put it into your retirement account. Congratulations! You can now afford to live 2.4 days longer.
"Take twerking lessons.
"Go into rehab, whether you need to or not. Tell everyone.
"Buy a drone. Spy on your neighbors.
"Cover your body with GoPro cameras. Do almost anything. Edit into video. Release on YouTube. (Can be combined with #2, above)."