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Tax refund advice: save, spend wisely
By Kalea Hall
YOUNGSTOWN
Save it or spend it?
That’s the No. 1 question that comes with tax refunds.
Bankers say to save – and if you spend, do so wisely.
“Our take is to move slow rather than splurge,” said Tom Collins, Huntington retail district manager. “We encourage them to establish a rainy-day fund and make an educated decision with what to do with that money.”
This year’s federal deadline is next Monday, giving filers three extra days because of the weekend.
In fiscal year 2015 – Oct. 1, 2014, through Sept. 30, 2015 – the Internal Revenue Service collected more than $3.3 trillion, processed more than 243 million tax returns and other forms, and issued more than $403 billion in tax refunds.
In Ohio alone, there were 8.4 million tax returns and other forms processed during the fiscal year. More than $140 billion was collected from the state, and $12 billion in refunds was issued.
During the 2015 filing season, more than 109 million taxpayers nationwide received a tax refund with the average coming in at $2,797.
A survey by GOBankingRates.com, a portal for personal finance and consumer banking information, surveyed 5,000 people on how they plan to spend their tax refunds this year. The survey found:
30 percent of people said they do not receive a refund.
27 percent plan to pay off debt including loans and credit cards.
25 percent plan to save their refunds.
9 percent will put their refunds toward a vacation.
5 percent will make a major purchase such as a car or home.
4 percent plan to splurge on miscellaneous items from shoes to TVs.
The survey also found 1 in 5 Americans plans to spend tax-refund money, and of those expecting a refund, women say they pay off debt 20 percent more frequently than men do.
“I think the first thing you want to do is pay down high-interest debt,” said Drew Martin, PNC executive vice president and market manager for retail banking in Northern Ohio. “This is a great opportunity to minimize that.”
Martin also recommends those who receive refunds to start or increase their emergency funds and to invest in continued education or a new skill.
“A tax refund certainly represents an opportunity for someone to get ahead,” Martin said.
Richard J. Horvath, an investment adviser at American Financial Services, a wealth-management company in Boardman, said people should reinvest into their Individual Retirement Accounts. Horvath recommends a reinvestment into a traditional IRA; a Roth IRA, which is a retirement savings account that allows money to grow tax-free; or to open a nonqualified investment – one that does not qualify for any level of tax-deferred or tax-exempt status.
“If they are looking to save on taxes, they might want to look at tax-free investments,” Horvath said. “Municipal bonds would be a good investment.”
Spent tax refunds do boost the economy with an increase in consumer spending. But PNC economist Mekael Teshome says people tend to both save and spend.
“At this point, we will go back to normal spending patterns and normal saving patterns,” Teshome said.