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Less Tax Refund = More Wealth

Those of you who got tax refunds probably were very happy but an article in our paper said maybe we shouldn’t be so happy when we get a tax refund. The article said getting a tax refund meant you gave the government an interest free loan over the past year because you had too much taken out of your paycheck.So far in 2008, the average tax return totaled more than $2,400. So that means that millions of us are overpaying the government about $200.00 a month on average. Some people think that overpaying income tax is good way to save money but often it is an easy way to spend money on unplanned purchases. Here are some suggestions from the article about what to do with extra money:

Pay down debt ($200 per month could really help reduce it)



Save in a 401(k), an IRA or an education fund - If you are in the 28% bracket and contribute $200 a month to a traditional 401(k) you can lower your tax bill by about $672 per year. If you contribute $200 into a tax-deferred account earning an 8% return, after 20 years that account would grow in value to $118,649 before taxes are paid.

Save it for a rainy day - Put the money in a savings account or money market fund to be used in an emergency. 

 Invest it - Put the money into a mutual fund. Mutual funds allow small investors to particpate in the stock market.

Make a purchase to “upgrade” your life. Put the money toward a home improvement (ex. insulation that will help you save money on heating and cooling your home)

If you find you are consistently receiving a good tax refund every year, you may need to revisit the amount withheld from your paycheck.

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