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Put your tax refund to work for you

Tina DeWitt and Charlie Wick

Now that we’re in the midst of tax

season, you may be anticipating a tax

refund, if you haven’t already gotten



one. Of course, not everyone receives a

refund, but, among those who do, the

Participate in The Longevity Project

The Longevity Project is an annual campaign to help educate readers about what it takes to live a long, fulfilling life in our valley. This year Kevin shares his story of hope and celebration of life with his presentation Cracked, Not Broken as we explore the critical and relevant topic of mental health.



amount can be sizable. In fact, in 2005,

the average tax refund was about

$2,125. If you’re going to get a refund,



start planning now on how to use it. By

making the right moves, you can help

speed up your progress toward your

financial goals.

What should you do with your

refund? Here are a few ideas:

– Put the money in your IRA. To

achieve a comfortable retirement

lifestyle, you will need to draw on a

variety of financial resources, one of

which may be an IRA. In 2006, you can

contribute up to $4,000 ” or $5,000 if

you are 50 or older ” to a traditional or

Roth IRA. As an example, if you

received a $2,125 refund ” last year’s

average ” you’d be well on your way

toward “maxing out” on your IRA

contribution. If you think this amount

can’t really make that much of a

difference in your long-term savings,

consider this hypothetical situation: If

you put that $2,125 in an IRA that

earned 7 percent a year, and you never

invested another dime in your account,

your money would still grow to more

than $16,000 in 30 years ” not a

fortune, to be sure, but nothing to scoff

at. (Keep in mind that these rates are

hypothetical and do not reflect the rates

of any investment currently available.)

And in all likelihood, you would not

just make a one-time contribution to an

IRA. At the end of 30 years, you’d have

to pay taxes on your traditional IRA

earnings, but by then, you may be in a

lower tax bracket. On the other hand, if

you had invested in a Roth IRA, your

earnings would grow tax-free, provided

you’ve had your account for at least

five years and you don’t begin

withdrawals until you reach age 591?2.

– Contribute to a Section 529 plan.

Many people contribute to Section 529

plans to save money for their children’s

(and grandchildren’s) college education.

You can put large amounts each year

into a 529 plan, and your earnings will

grow tax-free, provided withdrawals are

used for qualified higher education

expenses.

– Pay down high-rate debt. Short-term

interest rates have been rising over

the past few months. This could mean

that you’ll be paying a higher rate on

your credit cards ” which probably

carried a fairly high rate to begin with.

If you use some of your tax refund to

whittle down this debt, you’ll be

making a wise move, as this interest is

typically not tax-deductible, and

therefore, of no benefit to you.

– Build up your “rainy day” fund.

You might want to use your tax refund

to build your emergency fund.

Generally speaking, you should set

aside six to 12 months’ worth of living

expenses to pay for such emergencies

as car repairs, new appliances and

unexpected medical bills.

You can’t always count on a tax

refund ” but when you get one, make

the most of it. You’ll be glad you did.

Charlie Wick and Tina DeWitt are investment representatives with Edward Jones. They can be reached in Eagle at 328.4959 and in Edwards at 926-1728.

Vail, Colorado


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