How to Get More out of Your Tax Refund

By Heather Taylor0 Comments

If you’re getting money back from the government this year, chances are you filed your tax return well before the deadline and possibly have your refund already.

Do you already have that money spoken for? These taxpayers do, and they shared with CNNMoney.com how they’re using it. Plans include world traveling, paying off student loans, and hosting a crayfish boil.

While it might be tempting to buy yourself that new toy you’ve been eyeing, some of the contributors put their minds toward the future and letting the seed of the refund potentially grow into eventual wealth.
A little planning for the future could pay off in tax savings alone, according to a Mainstreet.com article.
With the average refund yielding $3,000, investors who put that amount toward an IRA or Roth IRA will have reached half of the contribution limit, depending on whether they qualify, said Charles Sizemore, a CFA based in Dallas who manages four investment portfolios on Covestor, an online marketplace for investing.
 
"With wage growth being stagnant over the past decade, saving money can be something of a challenge”, he said.  "However, $3,000 placed into a traditional IRA is worth an immediate $750 in tax savings in the 25% tax bracket."
 
In addition, the sooner you start putting money away, the more you’ll have later due to compound interest. In 10 years, assuming an annual return of 8 to 10 percent, the initial $3,000 could turn into as much as $7,781, Sizemore said.

Try this investment return calculator to find out how much your tax refund could potentially yield over time.