Retirement Savings From your Tax Refund

“File your tax online and get refunds fast.”” Use our e-file software to file your 1040 online and get the maximum refunds.” You have probably heard or seen one of these or similar ads online when you were filing your tax return online. And if you believed them and followed them you probably realized that they were mostly right. That is right, you definitely get your refund faster if you e-file your tax, and mostly the refund can be higher also. So you probably have thousands of dollars of your refund money lying with you and do not know what to do with it. One thing that we need to think about is our retirement plans and we can use our refund money to fulfil these plans and have a better post retirement life. Here is what you can do with your refund money.

You have until April 15 to contribute up to $5,000 to an IRA for 2009 (or $6,000 if age 50 or older). If your modified adjusted gross income is $120,000 or less if you're single, or $176,000 or less if you're married filing jointly, then you can contribute to a Roth IRA, which lets you withdraw the money tax-free in retirement.

If you earn too much for a Roth, you can contribute to a nondeductible traditional IRA, then convert it to a Roth.

Take this advice and use your refund money to have a better life after retirement.

Where to Put your Refund Money

Well if you have been smart when you e-file your 1040 you probably got your refund earlier as compared to those who file their 1040 in the orthodox way. And if you have got your refund check and looking at it right now, then chances are that it is of quite some value, probably in thousands. As a matter of fact the average refund for this year is running just above $3000 as per the Internal Revenue Service. Now that is quite a chunk of money. Even though most people know that they are going to get their refunds, and they mostly have an idea about the amount it is going to be, they do not plan on how they should spend it. Another viewpoint is that it would be definitely better if you did not lend Uncle Sam all that money interest free every year. You can use several tax withholding calculators that are available online to give yourself an instant pay raise and have more money available for investment year after year.

That being said, one very good place to use your refund money is in paying your credit card debt. When you use your refund to pay off a balance with an 18% interest rate, it is like earning 18% on your investments. Now I can say that that is a good return on your money and that is an incredible use of your money. And as a plus point if you pay off your balances, you can afford to close some cards that might be charging you high fees now.