WASHINGTON, April 14, 2014 /PRNewswire-USNewswire/ -- As tax season comes to a close, approximately three-in-four taxpayers will receive a refund from the IRS. While millions of Americans eagerly await their reimbursement check from Uncle Sam, the American Bankers Association has highlighted five tips for making the most of their tax refund.
"Using your tax windfall wisely can start you on the path to long-term financial stability," said Frank Keating, ABA president and CEO. "Before you splurge on a vacation or a 60-inch LED HDTV, it's important to honestly evaluate your financial situation and consider investing the refund in your financial future instead."
Below are ABA's key tips for consumers looking to put their tax refund to good use:
- Save for emergencies. Open or add to a high-yield savings account that serves as an "emergency fund." Ideally, it should hold about three-to-six months of living expenses in case of sudden financial hardships like losing your job or having to replace your car.
- Pay off debt. Pay down existing balances either by chipping away at loans with the highest interest rates or eliminating smaller debt first.
- Save for retirement. Open or increase contributions to a tax-deferred savings plan like a 401(k) or an IRA. Where can you get one? Your bank can help set up an IRA, while a 401(k) is employer-sponsored.
- Put it toward a down payment. The biggest challenge that most first-time home buyers face is coming up with enough money for a down payment. If you intend to buy a new home in the near future, putting your tax refund toward the down payment is a smart move.
- Invest in your current home. Use your refund to invest in home improvements that will pay you back in the long run by increasing the value of your home. This can include small, cost-effective upgrades like energy-efficient appliances that will pay off in both the short and long term. If you have more substantial renovations in mind, your bank can help with a home equity line of credit (HELOC).
For more consumer tips and resources on topics such as mortgages, credit cards, protecting your identity and saving for college, visit ABA's recently launched consumer website—ABA.com/Consumers.
SOURCE American Bankers Association