Dollars & Sense

Kat’s Money Corner | Four ways to get the most out of your tax refund

Updated: 2013-03-27T21:44:49Z


Special to The Star

Let’s face it — the only good part about doing taxes is the anticipation of getting something back. For some fortunate filers, it might just be a substantial amount of money.

Most of us get that money in hand and either blow it on random purchases or just let it get sucked into the vacuum of everyday expenses. It doesn’t have to be that way.

Last year about 43 percent of Americans saved at least a portion of their tax refund. Here are a few ways to make the most of yours.

Sock it away! If you’re living paycheck to paycheck, it’s probably difficult to even put away $20 every week, which would give you a little more than $1,000 in a year. How nice would it be to have $1,000 in reserve, to handle that inevitable car repair, plumbing bill or other unexpected expenses? Whatever amount your refund is, putting it in savings is always a smart decision.

Put a dent in your debt. Let’s say you have a little savings set aside already, but consumer debt like a credit card balance weighs on you daily. Your refund can actually be worth much more if you use it to pay down debts that accrue interest month after month. And the sense of relief is invaluable.

Buy some time. If you must buy something with that refund, buy time. Believe me, long-term interest costs you way more than you think. To find out just how much, plug your mortgage or car loan info into the simple calculators at a website like CommunityAmerica Credit Union’s ( or ( Putting your tax refund toward the principal just once, or better yet every year, can save you thousands of dollars over time and remove months or years from the life of your loan.

Pad your retirement. If you have little to no debt and have 3 to 6 months of living expenses saved … great job! But have you contributed to your IRA? You have until April 15 to make contributions to your 2012 IRAs. Considering how well the stock market has done lately, each dollar you contribute now could be worth several times what it’s worth today down the road.

As nice as a sizable refund might feel, here’s a hard dose of reality: it probably means you’re having too much money withheld from every paycheck. If you’re not a disciplined saver, this may be a good way to ensure you at least save something over the course of a year. However, in effect you are giving the IRS and your state treasury an interest-free loan.

Talk to your tax preparer or, if you do your taxes with an online service like TurboTax (, or H&R Block at Home (, tap into their free advisory services. Most will provide a recommended amount to withhold this tax year, to keep you from paying too much (or too little).

If you can get past the thrill of getting a nice chunk of change this time of year, the extra money each paycheck can be saved, invested, or used to pay down debt that is costing you month after month. That discipline and momentum can be rewarding and literally enriching over time!

Whatever you do, find an approach that works for you. Then make your money work in your favor.

Kat's Money Corner is posted on Dollars & Sense every Tuesday. Kat Hnatyshyn, when not blogging or caring for her little one, is a manager with CommunityAmerica Credit Union. For more financial chatter, click

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