# Make Tax Refund Work for You Says LSU AgCenter Family Economist

Jeanette A. Tucker  |  6/24/2005 12:40:23 AM

News You Can Use for March 2004

For many families, the arrival of a sizable tax refund check is the financial event of the year. "By carefully planning ahead, you can make that refund check bring you closer to your important goals," says LSU AgCenter family economics professor Dr. Jeanette Tucker.

"So what are you going to do with your windfall?" she asks.

"Now is the time to make plans for wise use of this money, because it is a significant enough sum to affect your future financial security," the family economist says.

Tucker offers several ideas to make the refund work for you.

First, there is probably no better "investment" than to repay your debts, such as outstanding credit card balances. Paying off an 18 percent credit card is equivalent to earning a 25 percent return for a person in the 28 percent tax bracket. Mathematically, that’s 18 divided by 1 minus .28, (or .72) = 25. You would have to earn a 25 percent return to be left with 18 percent after taxes. Unlike investments, such as stocks and bonds, the amount you’ll earn by repaying debt is guaranteed and tax-free.

If you have no outstanding consumer debt (congratulations!), consider investments. A number of low-cost investment alternatives are available that require \$100 or less to open an account and hundreds of stocks with direct purchase plans. Tucker says to check the Web site www.netstockdirect.com.

In addition, Series EE U.S. Savings Bonds can be purchased for as little as \$25. Inflation adjusted Series I bonds are available in \$50 increments.

Don’t think that investing your return will really matter? Think again, Tucker says. With an 8 percent annual return, your money will double in nine years according to the Rule of 72. Check the Web site www.investing.rutgers.edu for additional investment ideas.

You also could use your refund to fund a portion of your 2004 IRA. Check the calculators linked to the Web site www.rothira.com to determine whether a traditional or Roth IRA is a better choice based on your annual contributions, years to retirement and tax bracket. You are allowed to contribute up to \$3,000 maximum to any IRA or combination of IRAs.

"Another good option is to invest in yourself, or as we economists like to say, ‘build your human capital,’" Tucker suggests, explaining, "Take a course or other job training experience to improve your knowledge and skills."

The training could eventually lead to a raise or promotion and pay back your tuition payment many times over. Two good places to continue your education are through Louisiana’s Community and Technical College system and through professional or trade associations related to your occupation.

For local information and educational programs in related areas of family and consumer sciences, including nutrition and health, parenting and family economics, visit the Family and Consumer Sciences Web site at http://old.lsuagcenter.com/Inst/Extension/Departments/fcs/.

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On the Internet: LSU AgCenter: www.lsuagcenter.com/Inst/Extension/Departments/fcs/
Source: Jeanette Tucker (225) 578-1425, or Jtucker@agcenter.lsu.edu.