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Growing green: How to stretch your IRS tax refund check

The Charleston Gazette (Charleston, WV) April 9, 2004 | Jennifer Ginsberg Show me the money! How long does it take after filing a return to receive a refund? Three weeks: If you filed an online return opting for a direct deposit refund Five weeks: If you filed a paper return opting for a direct deposit refund Eight weeks: If you filed a paper return opting for a paper check refund Follow the money What happens if you invest $1,000 of this years tax refund: Investment type result after year 1 Mutual fund 4- 10 percent growth $1,040-$1,100 CD 2 percent growth $1,020 Savings Account 0.5 percent growth $1,005 Find out more: The IRS says refund information does not become available until six weeks after you filed a paper tax return or three weeks after you filed one online or over the phone. Heres how to find out if the IRS received your return and whether your refund was processed and sent to you: 1. Log on to www.irs.gov or call the refund hot line at (800) 829-1954 2. Click on wheres my refund and then go to get my refund status Note: Be sure to have a copy of your current tax return available because youll need to know your Social Security number, the filing status and exact whole dollar amount of your refund. site irs tax refund

jginsberg@wvgazette.com Tax refund check burning a hole in your pocket? Already have the check spent three times over?

You’re not alone. Many people’s first instinct when they see a tax refund check from the Internal Revenue Service in their mailbox or directly deposited into their bank accounts is to spend, spend, spend.

“When you get that check, it’s very tempting to want to run out and buy something, enjoy it and have fun with it,” said Jackie Perlman, a senior tax research analyst with H&R Block. “First, you have to sit back. Look at your finances.” The average American’s tax refund this year is $2,470, compared with $2,114 last year, said IRS Spokesman Chris Kerns. Last year, 732,876 West Virginians received an individual income tax refund. The average refund was $2,108, he said.

Perlman and Rick Slater, a partner with Simpson & Osborne, an accounting and business advising firm in Charleston, suggest people first use the refund check money to pay off their debts, including high interest credit cards.

“Some of the most strategic and fiscally responsible things to do are pay off debt, whether it’s credit card debt or [other] debt saddled with interest,” he said. “[Paying off debts] helps your credit report and financial standing.” Once you’re out of the red, you can start expanding your green.

Perlman and Slater agree that tax refund check time is a good time to start saving. Maybe now is the time to become savvier about investing in the stock market. Perlman suggests buying an investment magazine and reading up on some mutual funds and then investing in a fund that looks interesting. Brokers also help when buying mutual funds. site irs tax refund

Maybe it’s time to open or add a little more to an individual retirement account. A traditional IRA allows individuals to contribute up to $3,000 annually and deduct the contributions if they meet the earned income requirements and age limitations, Perlman said. Individuals 50 or older can add an additional $500. This type of IRA requires individuals to pay taxes on money they withdraw from the account that isn’t used for qualified expenses, like medical bills, a first-home purchase or higher education bills.

Although Roth IRAs have the same contribution limits as traditional IRAs, Roth account holders don’t receive any deductions, but earnings and withdrawals are tax-free.

Traditional and Roth IRA taxpayers can also qualify for the Saver’s Credit beginning this year. This tax credit is up to $2,000 for contributing to a retirement savings account.

Placing some tax refund money into a college savings fund is also a smart investment, Slater said. All contributions to the state’s Smart529 college savings plans are deductible from West Virginia taxable income. The money is also federal and state tax-free when the account holder withdraws money for a qualified educational expense.

People with refund money can also put it into an emergency account. Economists say people should have three to six months’ worth of living expenses saved in case of an emergency, like a job loss or unexpected medical or car bills.

“In reality, most folks can’t afford to do that,” Slater said. He recommends people save $3,000 to $4,000 to pay for one-time emergency expenses. “It’s always good to have a little something if you can.” Some people use the federal government as an automatic savings account, even before they get their refund check.

“They choose the mechanism to make sure they have enough taken out during the year to save,” Slater said. “Some people just don’t have the discipline to save money [throughout the year].” Unfortunately, this type of informal savings account doesn’t earn interest and only lets the government hold the money you earned during the year, longer.

Whatever savings method people pick, Perlman and Slater stress the importance of stashing the cash in something that’s not easy to get out of the bank next week. Regardless of the investment type, saving the money means you’re still stretching your refund.

If, after paying off debts and getting your finances in order, there’s still money smoldering in your pocket, Perlman isn’t opposed to using the money for a good time.

“I think it’s nice to do a combination of something fun and practical.” Jennifer Ginsberg