How to Put Next Year’s Tax Refund to Work for You Right Now

Did you get a large tax refund last year?

Did you like getting a tax refund if you did?

While it was probably nice to receive a “windfall”, if you are still in debt or not saving enough for retirement, wouldn’t you rather have next year’s money now, to pay off debt at a high interest rate or to save for retirement by opening a Roth IRA, or save it in a high interest savings account? More than two-thirds of tax filers get a refund every year, with an average refund of over $2000. That’s almost $200/month that could be in your pocket now, if your refund was about average. I got a tax refund this past year, and although it was nice, I am changing my tax withholding to minimize the size of the refund I get next year. Look at it this way: If you have credit card debt at 15%, not only are you paying the credit card interest rate on that money when you could be paying off the amount this year , but you are losing an additional few percent to inflation.

If you do owe credit card debt or don’t have the money to open a Roth IRA, or just want to be in control of your own money, you should really consider changing your tax withholding by increasing the number of exemptions on your W-4 . Estimate the number of exemptions you should have on your W-4 by using the IRS Withholding Calculator on the IRS website.
Tips For Using The Program

Have your most recent pay stubs handy.
Have your most recent income tax return handy.
Fill in all information that applies to your situation.
Estimate values if necessary, remembering that the results can only be as accurate as the input you provide.
Consult the information links embedded in the program whenever you have a question.
Print out the final screen that summarizes your input and the results, then use it to complete a new Form W-4 (if necessary), and keep it for your records.

While it’s easy to look at getting a substantial tax refund every year as forced savings, I am sure you can come up with better uses for that money now. If not, change your withholding anyway, set up a direct debit from an online savings account such as ingdirect, and force yourself to save.

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