With tax refunds averaging about $3,000 this year, the latest NY1 Money Matters report tells you where you should be putting that check from Uncle Sam. NY1's Tara Lynn Wagner filed the following report.
If there's a silver lining to tax season, it's the arrival of the highly anticipated tax refund. So far this year, the Internal Revenue Service has issued more than 61 million of them to the average tune of around $3,000. The question is, what should you do with the windfall?
It might not be what you want to hear, but the simple and unexciting answer:
"You should go ahead and save some of that money," says Alba Pica of the New York City Department of Consumer Affairs.
It's a drag, I know, but if you are one of the many people who finds setting aside money out of every paycheck difficult, then this may be a way to force yourself to save.
If you don't already have an emergency fund, which, in an ideal world, should cover your expenses for six to nine months, you can use this cash as a kickstarter.
Another option would be to pay off high-interest credit card debt that keeps you from keeping your head above water.
However, let's say you're lucky enough to have your immediate needs met. In that case, your best bet now is to save for later.
"The best place to put that tax refund is into your investment account," says John Vento, a certified public accountant. "If your main goal is retirement, add that to your IRA account. If your main goal is to save for your child's education, put into a 529 plan. That would be the number one thing you should do with that money."
However, for his money, Vento says you're better off not getting a refund at all. A big refund means you've been sending the government too much money week after week. His advice is to alter your withholdings to reduce the amount of taxes taken out of your paycheck and then set up a system where that extra money is sent directly into your retirement account or other savings plan.
"I know, it sounds a little crazy to try and bring down your refund, but rather than giving the government an interest-free loan all year, why not put that money to work from day one by having that money go directly to an investment account?" Vento says.
If you are expecting a refund, the fastest way to get it is to e-file and opt for direct deposit. In fact, the IRS says that so far, 86 percent of refunds issued this year have been sent directly to taxpayers' bank accounts.
To find out the status of your refund, click "Where's my refund?" at irs.gov.