Get a decent refund? Here are some tips on putting that money to work for you.

Sandy Botkin
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You just got a nice refund from the IRS and probably go some sort of stimulus. So what is the best recommendations that you should do with this money. I will be publishing two per day this week. So keep reading and come back each day:

Shore Up Your Emergency Fund

Even if you’re working now, there’s no guarantee that your hours won’t be cut, your salary reduced, or your job eliminated. That means it’s more important than ever to have money set aside for emergencies. That way, you won’t have to run up credit card debts or raid your retirement savings to pay the bills until you get back on your feet. Aim for six months of living expenses — more if you’re the sole provider for your family. Interest rates are abysmally low right now, but you can eke out higher rates by putting your savings in an online bank account. Look for one with no minimum balance requirement or monthly fees.

Pay Off High Interest Debts

While interest rates have been falling, most credit cards still charge upwards of 15%. Pay off those unpaid balances and you’ll get a return on your investment a successful hedge fund manager would envy. If you’re able to pay off the entire balance, you’ll also eliminate a monthly expense, which will give you some breathing room if you lose your job.

Invest In a Prepaid Tuition

A section 429 plan for your kids’ education: Most states have prepaid tuition which allows for a guarantee payment of most if not all of the undergraduate tuition and fees. Some even have prepaid room and board costs too. You should definitely consider this if you think you kids might want to attend a state university. Also, there exists a section 429 plan (established by section 429 of the Internal Revenue Code) that allows tax free savings for private schools, and graduate schools. It also applies for a required computer and internet costs. The earnings are tax free if used for qualified educational expenses and can work for any accredited university for both undergrad and graduate education. You can even have both a prepaid plan and a section 429 plan. It also allows you to switch beneficiaries, so it is very flexible.

Maximize Your Retirement Plan

Definitely, you should be maxing out your retirement contributions especially if there is some matching by your employer. Not doing this is akin to walking away from free money.

Hope this discussion gives you a good roadmap as to what to do with your refund and savings.

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