If you’re owed a tax refund, you can put it to good use, increasing your wealth and even saving you future taxes. Here are some ways to consider:
- Add to an IRA or 401(k) plan. You can have your tax refund transferred directly into a traditional or Roth IRA for 2010 (if you file early enough) or for 2011. It’s up to you to tell your IRA custodian to which year the refund should be applied.
- Pay down credit card debt. The interest paid on this debt usually isn’t tax deductible.
- Buy U.S. savings bonds. You can use a tax refund to directly purchase series I bonds in multiples of $50, up to a maximum of $5,000.
- Make certain energy improvements to your home. If you didn’t take a tax credit for improvements in 2009 and/or 2010, you may qualify for a tax credit in 2011 of up to $500 for improvements made this year.
- Add the money to a 529 college savings plan for your child or grandchild. While the contribution isn’t tax deductible for federal income taxes, you may get a tax break on your state income tax return.
- Contribute to your favorite charity. If the donation from the tax refund is $250 or more, be sure to obtain a written acknowledgment so you’ll be able to deduct the contribution on your 2011 return.
- Apply it toward 2011 estimated taxes. You simply indicate on your 2010 return that you want the overpayment used for estimated taxes in 2011.