Saving, paying off debt among 
best uses for tax refunds

The word “windfall” brings to mind tantalizing images of a monster lottery payout or a huge, unexpected inheritance. But this month we’re thinking of a windfall that’s a little smaller and a lot more common: the tax refund.

Over the past couple of years, the average refund to taxpayers has hovered near $3,000. We’re not sure this is a great thing – letting the government hang onto your money, interest free, over the course of the year – but if you’ve got a refund coming we’d like to help you make the best use of it before it’s nothing but a memory or a big-screen TV. While you might consider us the no-fun duo, we’ll try to be balanced with these four ideas to make Uncle Sam “that” uncle:

Pay down debt. The average household carries more than $7,000 in credit-card debt. A supersized payment made possible by a big tax refund could be just what you need to make 2013 your year to finally get rid of debt. But you may not want to use the entire refund to trim your debt, because our second idea is central to avoiding debt in the future.

Build an emergency fund. If you don’t have the old cash stash of three to six months’ worth of committed expenses set aside for when something goes awry, now is the time. Otherwise, new tires, a new furnace or the need to help out with a sick grandchild could leave you in the red. For that reason, we think setting a little aside to start building or add to your existing cushion is a great way to go.

Save for retirement. Will your tax refund be the engine that single-handedly funds your golden years? Nope. However, it could be the spark that gets you consistently putting money away in an IRA, Roth IRA or employer plan. Use your refund to get – and keep – the ball rolling.

Preventive saving. Yes, we know life is not all work and no play. But we’d rather play with our own money and avoid paying interest. Consider setting aside a portion of your refund to fund this summer’s vacation or break out an envelope and put some away for next year’s holiday shopping. If you’re still paying for last year’s gifts, set a different course this year by leveraging your refund.

Windfalls come in all shapes and sizes, and you may have one in the mail, snail or electronic. Use it wisely.

June Lantz Walbert and J.J. Montanaro are certified financial planners for USAA, The American Legion’s preferred provider of financial services. Submit questions for them online.

This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional.USAA means United Services Automobile Association and its insurance, banking, investment and other companies. Banks Member FDIC. Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers. USAA Financial Planning Services® refers to financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and Certified Financial Planner TM in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.