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By Linda Stern
WASHINGTON(Reuters) - The average federal tax refund,
so far this year, is below what prognosticators were expecting,
but it's still a hefty $2,090 per household. That's a nice chunk
of change.
If you don't have your money yet, but want to find
out where it is, the Internal Revenue Service has instituted an
Internet-based "Where's My Refund?" tracking service
on its Web site, http://www.irs.gov.
Surf there with your Social-Security number, your
filing status and the exact refund amount on your tax return,
and you'll be able to find out how close your money is.
The bigger question, though, is where to spend
it.
More than half of all refund-expecters have already
spent it: They intend to use their refund to pay bills. And, if
you're carrying credit card balances, there's no better place
to put that tax refund to work. If you've got a $2,000 balance
on a 14 percent card and you pay $50 a month, you'll spend $653
and 4-1/2 years of your life before you can zero it out. Pay it
off with your tax refund and you're free and clear, just saved
all that interest and still have $90 left for a celebratory night
on the town.
Here are some other great places to park your refund.
-- Buy a house. OK, so $2,000 isn't even a respectable
down payment. But it will take care of closing costs on many home
loans, and with the abundance of no-downpayment, interest-only,
graduated and other loans available, if you're still apartment-dwelling,
this might be enough money to put you over the top.
Are housing prices already inflated? Yup. Are mortgage
rates off their lows? Yup. Is owning a home still one of the best
investments you'll ever make? Absolutely.
-- Buy some knowledge -- right now -- for yourself.
Even in a so-called jobless recovery, there's a market for people
who have the right skills. To that end, $2,090 will buy you three
credits into an MBA program at a major national university. At
a community college or online program, it will get you many, many
classes in business, design, computing, and even tax accounting
or financial planning. You may end up qualified for a better job.
At the very least, you'll learn something you didn't know before.
-- Buy some college later -- for your kid. Stick
that refund into a Coverdell College Savings Account. Interest,
dividends and gains will accumulate tax-free if the proceeds are
used for education. It's easier, usually cheaper, and offers you
more investment choices than most 529 plans. Shop for one at http://www.savingforcollege.com.
-- Do the Roth IRA. This is a great, underutilized
program. You can invest the money wherever you want, let it grow
as long as you want, and never pay taxes on the money you earn
if you use it in retirement. But you still can get your initial
investments out earlier than that if you need to.
Get a jump on 2004 by putting your $2,000 in now
to open the account. Then add $3,000 every year for 20 years and
you'll have close to $150,000, $86,000 of which you'll have earned
tax free if you make 8 percent a year, on average, on your investment.
A good place to start is Vanguard Investments or Fidelity Investments.
Both offer solid, low-cost mutual funds that will grow a Roth
nicely.
-- Get some financial advice. For $2,000, you can
get a state-of-the-art financial plan and someone to look over
that tax return to make sure you didn't deserve an even bigger
refund. If you don't already know how much you're supposed to
be saving for retirement; what kind of insurance you need, or
how you're going to make it to your next payday, this option might
pay the highest dividends.
Contact the National Association of Personal Financial
Advisors to find a reputable (and non-commissioned) planner in
your neighborhood.
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