Stephanie McElheny

Tax filing can be a stressful process, but for many Americans, the silver lining is that they will receive at least some sort of refund.

If you are one of the individuals who expects to receive a check from Uncle Sam this year, here are a few ideas for putting your hard-earned money to good use:

n Pad your emergency reserve. A general rule of thumb is to keep at least 3 to 6 months’ worth of expenses in liquid assets to protect against unforeseen circumstances such as job loss, disability, unexpected car or home expense. This fund may consist of checking/savings accounts, money market funds or short-term CDs.

n Pay down debts. Whether it is a vehicle loan or credit card, the interest rates on these accounts essentially act as a negative return on investment. Therefore, it is important to pay off high interest debt as soon as feasible, assuming there are no prepayment penalties.

n Fund an IRA. Depending on your modified adjusted gross income (MAGI), you may be eligible to make a contribution to a Roth IRA or a deductible contribution to a Traditional IRA. You can contribute up to $5,500 this year, with a $1,000 “catch-up” contribution available to those aged 50 and older, assuming you have earned income.

n Contribute to a 529 college savings plan. If you expect your children or grandchildren will go to college, these accounts can be the perfect savings vehicle. Section 529 plans let you contribute on a potentially state tax-deductible basis depending on where you live, and distributions are tax-free if used for qualified higher education expenses.

n Give to charity. For those who itemize deductions or plan to and are charitably inclined, donating cash or property to a qualified organization can have a sizable impact on next year’s tax bill. In general, contributions to charity can be deducted by up to 50 percent of AGI, but a 30 percent limitation may apply to certain organizations.

n Start a vacation fund. By building a separate account for these expenses and contributing a small amount periodically, you can avoid having to tap your investments to finance your next trip.

n Make improvements to your home. Similar to the vacation fund, you could build a dedicated account for future remodeling expenses. These upgrades can be especially helpful if you plan to put your house on the market soon.

n Invest in the market. If you still have refund money left over after allocating it to other items, consider investing it. This is a great opportunity to put your money to work for you, especially in a non-qualified account that is eligible for preferential capital gains treatment.

n Apply the refund to government bonds or next year’s taxes. The IRS allows you to use your refund to buy savings bonds or have it applied to next year’s tax bill, instead of receiving a check or direct deposit.

Taxpayers should attempt to keep their refunds as low as possible each year, otherwise you are essentially giving the government a tax-free loan. To reduce the chances of that happening, make sure that your current withholding is as up-to-date and accurate as possible.

To adjust this, all you need to do is file a revised W-4 with your employer. You can use online tools to help calculate the correct amount.

Regardless of the size of your refund, you may want to consider having a master plan done. This financial plan will take a comprehensive look at your entire financial situation and help determine the best course of action for those funds.

Contact Hefren-Tillotson for details.

This article was submitted by Stephanie McElheny and Hefren-Tillotson.