Five wise ways to put your tax check to work

Not everybody, of course, has an employer-sponsored retirement account at work. That's where other retirement plans like an Individual Retirement Account, a Roth IRA, a simplified employee pension plan (SEP), or a Keogh plan come into play.

"I advise a lot of my clients to put their tax return money in a Roth IRA for a simple reason - there's no guarantee that Social Security will be there for them when they retire," says Dixie Butler, a certified financial planner in McLean, Va. "If you have a $2,500 check coming your way, that just about fully funds your annual limit of contributions to a Roth."

Since 1997, investors have had two main types of IRAs from which to choose - a traditional IRA and a Roth. Both now allow a $3,000 individual contribution per year ($3,500 if you are 50 or older). But a Roth is taxed immediately and grows tax-free. Which type is right for you depends upon your situation.

Admittedly, paying for a college education is probably the furthest thing from your mind when that refund check arrives in your mailbox. But as the cost of college continues to rise, most investment advisers will advise their clients to start preparing as early as possible for funding this large family expense.

"If you don't have a 529 college savings plan set up, do it as soon as possible and start contributing immediately," says Ms. Butler. "It's a tax-free way to save for your child's college fund. You can even do it for your grandchildren's college fund."

Other options for college savings plans include your home state's college savings plan, a Coverdell education savings account, or US savings bonds.

With home prices continuing their upward trend all across the country, purchasing a home has proven to be a wise investment. And with interest rates hovering at or near historic lows, there may never be a better time to move out of an apartment and into a house.

"With some mortgage plans, all that's necessary to purchase a house is a good credit rating and 5 percent down," says Mr. Street, the accountant. "Your tax refund could actually go a long way to meeting that threshold. And that makes a lot more sense in the long term than blowing all your money on a big-screen TV."

If you already own a home, your refund can be used to improve your property. Even small investments such as painting the kitchen, adding new plants outdoors, or updating a bathroom can add value to your home.

Another real estate option is to increase your mortgage payment for the month, reducing interest on the loan and decreasing the overall amount you will owe in the long term.

While this is the last item on the list, it may prove to be the most rewarding. No matter what your interest or outlook, there's almost certainly a charitable group working in that field. Donations not only help others, but since they are tax deductible, you will also benefit when you do your taxes next year.

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