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Suggestions on Using Tax Refund

May 18, 1999

Q. I’m fortunate to be getting an income tax refund this year. Any suggestions on how I can put it to good use?

A. First, some advice on what NOT to do with it: Don’t blow it all on fancy dinners and indulgent purchases.

Financial advisors say taxpayers should look to their refund checks as a means of making headway on long-delayed goals, such as paying down debt, opening an Individual Retirement Account or saving for their children’s college education.

The average refund check this year is $1,500, which is 15 percent higher than last year. It also happens to be just under the $2,000 annual limit for IRA contributions.

``It’s found money,″ says Judith Perry, a vice president and personal financial consultant at Merrill Lynch in Milwaukee. ``It’s been a kind of forced savings, and people should continue saving it according to their own priorities.″

If paying down debt is a goal, individuals should focus on the debt that carries the highest interest rates, such as credit cards. Paying off a mortgage, where interest rates are generally low these days and the interest payments are tax-deductible, should be further down on the list, according to financial advisers.

Investing is another good option. For many, that means putting money into a mutual fund of stocks or bonds.

The type you choose depends on many variables, such as age. For younger people saving for retirement or college costs, a more aggressive stock fund would be appropriate, Perry says. Those closer to retirement should choose a more conservative fund, such as a balanced fund or bond fund, she says.

But what about a little shopping spree, you might ask.

``I think you should postpone that until you win the lottery,″ Perry says.

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