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What to do with your tax return

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Eric SchwartzDid you receive a tax refund this year? If so, here are six financially smart ways to spend your tax refund:

1. Pay off any high interest debt. Use our credit card pay off calculator to see what it will take to pay off your balance.

2. Add to your retirement savings. Add to your current retirement savings plan or open an IRA (Roth or traditional). Unsure which one? Use this tool to determine which IRA may be right for you.

3. Start saving. Open an Edvest or other 529 college savings plan for your kids or grandkids. Build up your emergency fund. Start a money market account with a higher interest rate to save for a vacation, a new car, or home remodel. Whatever your goal, you’ll feel better knowing you have a head start on your savings. Our savings calculator can help you find out what it will take to reach your goal.

4. Consider a planner. If you are in need of a comprehensive financial plan, assistance with investments, or estate planning, you may want to use your refund to purchase the services of a financial planner. For help deciding what services you might need and how to find the right planner for you, read “Do you need a financial planner?”

5. Buy more protection. Umbrella insurance, which provides liability coverage above the limits in your auto and home insurance policies, is often overlooked as an important part of your financial security. In addition, Long-term care insurance, dubbed “the greatest uninsured financial risk today,” helps protect your assets and may be worth a look.

6. Share the wealth. Consider giving some or all of your refund to your favorite charity. Often monetary donations to charitable organizations are tax deductible, and you’ll feel good knowing your money will go toward helping others in need.

Consider adjusting your income tax withholding if you received a sizable tax refund this year. Doing this will reduce your annual refund, but you will be taking home more money each paycheck instead of letting Uncle Sam hold on to it (interest free).

Eric Schwartz, Retirement and Investment Services Specialist