What to Do with Your Tax Refund or Other “Found Money”

February 26, 2008

Garrett Planning Network Provides Thirteen Smart Ideas

(Lee’s Summit, MO) February 24, 2008 – After concluding their tax preparation activities, many people will see that they are entitled to a refund from Uncle Sam. “Whether you refund is large or small, you are wise to determine now what you will do when that check arrives,” says Sheryl Garrett, CFP®, author of Personal Finance Workbook For Dummies® (Wiley, November 2007) and founder of the Garrett Planning Network (www.GarrettPlanningNetwork.com). “Don’t fritter it away or spend it on a whim.”

On a recent teleconference, network members brainstormed thirteen ways taxpayers can put this “found money” to work:

1. Put the entire amount, up to the maximum allowed by law ($4000 for an individual in 2007 unless you are age 50+, then the maximum contribution is $5000; $5000 for an individual in 2008 unless you are age 50+, then the maximum is $6000), into a Roth IRA assuming your income falls below the government thresholds (the phase out for singles in 2007 is $99-$114,000 and in 2008 it’s $101-116,000; for married couples in 2007, the phase out is $156-166,000 and in 2008, it’s $159-$169,000).

If you are saving for higher education funding needs, withdrawals of regular contributions to a Roth IRA are not subject to tax or penalty and can be made at any time, and you can take a “qualified distribution” (one that is made after a 5 year holding period, beginning on the first day of the first year for which the contributions were made), if one of the following applies: (1) you are a first-time home buyer, (2) you are age 59 1/2 or older (3) the distribution is due to death or disability. If your earned income for 2007 is higher than the phase-out thresholds, put your “found money” into another qualified retirement plan such as a 401(k), 403(b) or 457 plan if your employer offers one. Consider contributing to a traditional IRA if you have maxed out contributions to your employer-sponsored plan or if a Roth IRA is not an option.

2. Give the money to charity and you can claim that amount as a tax deduction on your 2008 tax return, if you itemize using Schedule A of Form 1040

3. Sign up with www.kiva.org and provide micro-loans to budding entrepreneurs in third-world countries. If you’re feeling especially patriotic, you might consider investing in small business start-ups in the US, for instance: helping a relative by providing seed money for a local venture.

4. Start a tax-sheltered 529 college savings plan to fund your own or children’s/grandchildren’s educations. Consider funding an Education Savings Account (ESA), formerly called a Coverdell account, if you plan on paying private school tuitions through secondary school. (Coverdell phase outs in 2007 and 2008: Single- $95-$110,000; Married Filing Jointly – $190-$220,000)

5. Check that you have adequate insurance coverage on the following types of policies: property and casualty, life insurance, health insurance, long-term care and disability insurance. Use the tax refund money to pay the premiums.

6. Use the refund money to engage the services of an attorney. If you don’t have a will then have one drawn up. Without a will issues such as child guardianship and disbursements of assets will not be decided by you, but rather the laws at the time. For high net worth families, make sure your estate plan is up to date.

7. Use the money to purchase stock mutual funds at lower prices. Some funds offer lower initial purchase amounts, especially for IRA’s, or even lower if automatic transfers are made from your bank account or paycheck. While the market has been gyrating wildly, there’s never been a better time to invest. If you have cash sitting on the sidelines, you may miss the next market upswing. Time in the market matters more than trying to time when to get into the market. If you are investing for the long-term, you can’t afford not to be invested in stocks. Remember the old adage, “buy low and sell high.” Stock prices are low right now. Consider international as well as domestic opportunities.

8. If you have credit card debt, pay off as much as possible. For free credit reports go to www.annualcreditreport.com (the only authorized source for free credit reports). Use part of the money to obtain your FICO score from this site(the rating that shows how credit worthy you are). Correct any misreported items and work to keep your credit reports clean. Make your payments on time and don’t take on more debt than you should. Try to live within your means. Get help at the Consumer Credit Counseling center.

9. Mortgage interest rates are the lowest we’ve seen in years. If you have a good credit score, now is a good time to refinance your first mortgage and/or to wrap our Home Equity Line of Credit (HELOC) or second mortgage into a more attractive home loan. Consider a 15-year loan to accelerate the payout. Get out of variable loans now. Use your “found money” to pay points and loan costs.

10. During economic slowdowns, including a recession, job losses and/or business declines are inevitable. Take a course, add to your credentials and consider how you can improve your skill set to make yourself as attractive as possible in the marketplace.

11. Schedule your annual check ups with your doctor and your dentist. Use the tax refund money to pay the deductible and co-payments. Join the YMCA or the local health club, consult with a nutritionist, or buy a piece of exercise equipment (and be sure to use it!). Without your health, wealth is not important.

12. Schedule a financial check up for yourself. Annual trips to the dentist, the doctor – and your financial planner – are wise investments. A professional financial adviser can help you see tax loss harvesting opportunities, assess investment options, analyze insurance coverages, and plan for a secure retirement.

13. Purchase a gift certificate, for a set amount of professional financial advice, for a loved one. If you can’t afford or don’t want to pay for a complete financial plan, find a financial planner who works by the hour and will render as much help and advice in the time allotted by visiting www.GarrettPlanningNetwork.com.

About The Garrett Planning Network, Inc.

What: An international network of independent professionals who offer financial planning and advice on an hourly-as-needed, per-project and/or retainer basis. No commissions or third-party compensation is allowed. Now anyone regardless of income or net worth can hire an independent financial planning professional to help them make better financial decisions.

Network Founder: Sheryl Garrett, CFP® — author of several financial planning and investment books including her latest, Personal Finance Workbook For Dummies® (Wiley, November 2007). Recipient of numerous industry awards. Profiled in hundreds of national publications including Wall Street Journal, New York Times, Kiplinger Personal Finance, MONEY magazine and multiple times on the TODAY show, Bloomberg TV and Fox News affiliated stations. Named four times to Investment Advisor magazine’s annual list of the “Top 25 Most Influential People in Financial Planning.”

Headquarters: Shawnee Mission, Kansas (Kansas City metropolitan area)

Year Founded: 2000

Contact: (866) 260-8400 or info@garrettplanning.com

Web: www.GarrettPlanningNetwork.com

Membership Guidelines: Members pay an annual licensing fee in exchange for network training, support and participation. Members also must be CERTIFIED FINANCIAL PLANNER™ certificants or actively working toward that status, independently registered in the state in which they practice or with the U.S. Securities and Exchange Commission, and adhere to a strict code of conduct, ethics and compensation.

Number of Members: Approximately 300 across the United States and overseas, including Lee’s Summit, MO based Kristine McKinley.

Located in Lee’s Summit, Missouri, Kristine McKinley,CPA, CFP®, is a member of the Garrett Planning Network. Her firm is also a member of the National Association of Personal Financial Advisors (NAPFA) and the Financial Planning Association. Ms. McKinley offers a complimentary, no-obligation Get Acquainted meeting to discuss her services and help potential clients determine if there is a good fit. More information can be obtained at www.beacon-advisor.com, by phone at 816-739-4853 or by email at kristine@beacon-advisor.com.


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Beacon Financial Advisors, LLC, is a fee-only financial planning and Registered Investment Advisory firm headquartered in Lee’s Summit, Missouri and serving the greater Kansas City area.

The firm offers comprehensive financial planning services. Beacon advisors work solely for their clients. Click here to learn more about our services.

About Us

Kristine McKinley, CFP®, CPA, is the founding principal of Beacon Financial Advisors, LLC, an independent, fee-only financial planning firm located in Lee’s Summit, Missouri and serving the greater Kansas City area.

Kristine focuses on providing fee-only financial planning, investment advice, and tax preparation to individuals and families from all income levels.  About Us

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Kiplinger Magazine/NAPFA – Kristine McKinley answered reader’s tax questions during the 2013 Jump Start Your Retirement Plan Days sponsored by Kiplinger magazine and the NAPFA Consumer Education Foundation.