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April 18, 2011
Stop Giving Uncle Sam a Free Loan

How a big tax refund could be costing you, and what to do with the refund check you’re expecting this year.

Transcript

Nothing beats the feeling of getting a nice, big tax refund, right? You might not feel the same way when you consider that getting a refund is essentially like giving the government an interest-free loan throughout the year. You have better options.

First, get on track for next year. Ask to fill out a new W-4 withholding form at work. You can adjust the number of allowances claimed so the right amount of federal tax gets withheld. Next: think about how you’ll spend this year’s refund. Here are a few smart options:

• Pay down your debt to lower the amount of interest you pay in the long run.

• Put your refund in an emergency fund; try to save enough for six months’ worth of living expenses.

• Or, add it to your IRA or 401(k) retirement account.

Bottom line: Make this the last year you give an interest-free loan to Uncle Sam.

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