Unless you've filed an extension, the 2014 tax filing season has officially come to a close. Go ahead and let out a cheer, I won't tell anyone.
According to CNN, nearly eight in 10 tax filers (including yours truly) will receive a refund this year. Based on the most recent data from the Internal Revenue Service, 84% of tax filers making less than $50,000 per year will receive a refund, while roughly one in three making more than $200,000 per year will net a refund.
The latest data from the IRS also suggests that the average refund for the 2014 tax year so far is $2,893, slightly ahead of the nearly $2,800 refund that taxpayers have averaged over the last couple of years. While a tax refund is nothing more than you giving the government an interest-free loan -- which is typically not a wise idea since this is money you could have kept upfront and used for a number of purposes -- it does offer an opportunity to make potentially smart moves with your refund check if you've otherwise been a poor saver.
Here are 15 wise moves you can consider making with your enormous tax refund.
1. Pay down your highest interest credit card
Perhaps the best move you can make is to take your refund and pay down high-interest credit-card debt. The chances of your investment portfolio outpacing a 23% APR are pretty slim, so do yourself a favor and pay down your high-interest credit card debt.
2. Make an extra mortgage payment
Although interest paid on your mortgage is likely deductible on your taxes, over the life of a standard 30-year mortgage on $250,000 the homeowner will pay nearly $200,000 in interest. Making an extra mortgage payment with your refund builds additional equity in your home and could make a serious dent in your total interest paid if you regularly do this each year.
3. Pay down your car loan
Your car loan is probably at a lower interest rate than your credit cards, but that doesn't make this type of debt any more palatable. Personal interest loans, such as that for a car, aren't deductible on your taxes, so if you can make a car loan go away, or if you can make a dent in the amount left to pay, it may not be a bad idea.
4. Go see your doctor
Been putting off going to your doctor because of the potential out-of-pocket costs? Consider taking your refund and getting yourself the checkup and perhaps elective procedures and tests you've needed. Not taking care of yourself now can lead to more costly complications later, so it's in your best interest to stay on top of your health.
5. Consider going back to college
It's no secret that college graduates make more during their lifetime than people without a college degree. According to the Federal Reserve in 2014, a college degree is worth $830,000 more in lifetime earnings. Taking your refund and applying it toward college courses for yourself could wind up being the best investment you ever make.
6. Open an IRA
Tax-advantaged retirement accounts are a great way to put your tax refund to good use. For example, IRAs allow for people under the age of 50 to contribute up to $5,500 per year, with those aged 50 and up allowed an extra $1,000 on top of the initial $5,500. Roth IRAs are a particularly intriguing option for young and middle-aged tax filers since capital gains in these accounts grow completely free of taxation as long as you don't make unqualified withdrawals.
7. Donate to your favorite charity
Consider giving your favorite charitable organization some or all of your refund. Not only will you be supporting a cause you believe in, but the amount you donate may be deductible when you file your taxes the following year. Just one note here: make sure the organization you're donating to qualifies for a tax deduction and that you get a physical receipt that shows you made the donation.
8. Refinance your mortgage
Lending rates are still near historic lows (but who knows for how much longer), so if you're still paying 5% (or more) on your home mortgage now could be the time to consider refinancing and using your refund to cover the costs of the refinancing. For example, financing $100,000 at 3.66% (the latest 30-year mortgage rate) will lead to you paying nearly $65,000 in interest over the life of that loan. If you can swing a 15-year loan at 2.93% (also the latest rate) you'll pay less than $24,000 in total interest over the life of the loan. That's more than $40,000 in interest savings!
9. Invest in the stock market
Few investments have been steadier over the long term than the stock market. Historically the stock market has returned 8% per year, trouncing the return of metals like gold, CDs, money market accounts, and bonds. Sure, the stock market does come with risks, but it's also your best chance to outpace inflation over the long run.
10. Insure your future
Another wise move could be to take your refund and apply it in such a way that it protects you and your family. Consider beefing up your homeowners insurance to cover natural disasters as we head into spring and summer (see last week's unfortunate tornado outbreak as a tragic reminder of how important insurance can be), or consider purchasing term-life insurance for yourself in order to financially protect your family in case of an untimely death.
11. Build your emergency savings
The general rule of thumb is that you should have between six and nine months of cash (including CDs and money market accounts) available to cover your expenses should an emergency arise, or if you lose your job. Based on a study by Bankrate last year, half of Americans either have zero emergency savings or enough to cover three months or less of expenses. Consider taking your refund and applying it toward your emergency fund.
12. Make an energy-efficient upgrade to your home
Nabbing a windfall tax refund could be the perfect opportunity for you to make energy-efficient improvements around your home. These can include solar panels on your roof, a solar water heater, or a wind turbine as an example. Best of all, the cost of the products and the labor to install said products can be deducted on next year's tax filing.
13. Get car maintenance done
Have you been putting off much-needed car repairs? Take your tax refund and consider getting standard maintenance done on your car. Today's automobiles are designed to last longer than ever if they're properly taken care of, therefore a small investment in your car (tune-ups, oil change, tires, and so on) can result in thousands of dollars saved over the long run by preventing costly transmission and engine blowups.
14. Start a 529 plan
Saving for college is a daunting task, which makes the prospect of contributing to a 529 college savings plan a possible no-brainer. Withdrawals from a 529 plan for qualifying educational purposes are tax free, contributions may be tax deductible based on the state you live in, and there are often multiple investment options for you to choose from, not just a one-size-fits-all investment platform, making it a tax-advantaged plan that'll accommodate nearly everyone's tastes.
15. Apply your refund to next year's taxes
If you're still at a loss of what to do with your refund, consider applying it to next year's return. This can be an especially useful tool for the self-employed, resulting in lower first- or second-quarter estimated payments and the ability to keep more of your earned money now, which you can put to work.
Curious what I did? No. 15 for me! How about you?
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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