Tuesday, April 17, 2007

What to do with your tax refund

Tax day is upon us yet again (although the IRS did just give us a 48-hour extension due to storms in the northeast). Many of us will be receiving tax refunds. What are the best uses for this influx of cash? Here are some suggestions:

  1. Splurge. Buy yourself something nice. Sometimes you do deserve to treat yourself.
  2. Pay off your highest interest rate credit card
  3. Make an extra mortgage payment if you are not subject to prepayment penalties

    Per this Motley Fool article, "Making one extra payment a year on a 30-year, 6.5 percent fixed-rate mortgage will shave more than $60,000 in interest and six years off the life of a $200,000 loan. "

  4. Keep a stash of cash for emergencies.

    Your best option is a highly liquid and high-yielding money market account. Try Capital One which as of today offers a 5.0% APY.

  5. Open a Roth IRA account and turn you refund into $17,000!

    Per this Motley Fool article, "If you invest $2,500 -- last year's average refund amount -- and earn an 8 percent average annual return over 25 years, you end up with $17,121. It's as easy as 1-2-IRA. "

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