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Smart Ways to Spend Your 2013 Tax Refund

Six ideas to put the money to good use

By Jonelle Marte | MarketWatch | March 13, 2014

(This article appeared previously on MarketWatch.com.)

More than 40 million Americans have already received good news — not only have they cleared their debts with the taxman but they are about to get a fairly sizable 2013 tax refund check.
 
Financial pros say the smartest thing to do with the money is to stash it for retirement, contribute to an emergency cash fund and pay down debt. And indeed, most taxpayers say in surveys that they are going to do just that. But if you’re going to spend the cash, you might as well spend it wisely.
 
Here’s what the financial pros suggest: 

1. Buy health insurance.
 
This is the only tax season that will overlap with the open enrollment period for the Affordable Care Act, which ends March 31. (Enrollment for 2015 is expected to end by Jan. 15.)

So taxpayers signing up for private insurance plans may want to use the extra cash to pay for some of their health insurance costs this year, says Lisa Greene-Lewis, a certified public accountant at TurboTax.

(MORE: 7 Ways to Avoid an IRS Audit)

Taxpayers could also hold on to the money to pay for deductibles, or the amount consumers need to pay on doctors visits, prescriptions and other services before their full insurance kicks in.

2. Buy a gift card.
 
TurboTax customers can get a bonus of 5 percent to 10 percent if they use their refunds to buy Amazon.com gift cards. Cards must be purchased in increments of $100 and the amount added will depend on the service used. Someone using TurboTax Deluxe, for instance, can spend $500 and get a gift card worth $550, while someone using the free or basic edition would get a card worth $525.

Consumers can also use their refunds to find discounts or bonuses on gift cards from other retailers. As MarketWatch’s Charles Passy recently reported, people can find discounts of 10 percent to 20 percent on gift cards for AMC Theatres and Regal Cinemas on Gift Card Granny, a site where people can buy and sell gift cards.

(MORE: Don't Let a Scammer Steal Your Refund)

3. Take a class.
 
Is there a course or training program that will advance your career? A refund check can foot the bill, says Greene-Lewis. The tuition could also lead to a tax break.

Parents of students may be able to claim the Lifetime Learning Credit, which maxes out at $2,000, even if the person taking the class isn’t working toward a degree.

Not ready to sign up for a course just yet? Put the money in a 529 savings plan for your children, says Greene-Lewis.

Workers should also check with their bosses about how much a class or certification might help their career before they go to the expense. Some credentials are costly and may not provide an immediate benefit, career coaches warn.

4. Prepay your bills.
 
Get ahead of those monthly car insurance payments or the soccer lessons your son wants to take in the spring, says Scott Halliwell, a financial planner with USAA. This approach works best when paying a bill up front might also lead to a lower price tag, such as paying down a car loan to reduce the total amount of interest that would be due, says Halliwell.

(MORE: What a Credit Freeze Can Do For You)

But it can also make good financial sense when the expense — say, buying new tires or brakes for the car — can lead to lower spending down the line, he adds. “That way you can keep the car longer,” he says.
 
5. Spruce up your home.
 
Taxpayers might use the money to replace old appliances, such as a dishwasher or air conditioner, or to remodel a kitchen or bathroom, says Mark Steber, chief tax officer for Jackson Hewitt Tax Service.

Spending the cash on home improvements could also help maintain, if not lift, the home’s property value. “You never lose money by investing in your home,” says Steber. And people who make changes to make their homes more energy-efficient may qualify for a tax break.

6. Treat yourself.
 
Using a refund to book a flight to Europe or buy a new TV might be a smart decision if it means you will avoid dipping into savings or taking on credit-card debt for the purchase, says Steber.

It can also be a reward for paying down debt and other expenses, he says.

“If you’re taking care of your home and your family and some of your other liabilities, splurge a little bit on yourself,” he says. But be aware, Steber cautions: Some taxpayers may end up losing money in the long run if they spend the cash instead of using it to pay down debt, since interest will continue to pile up.
 
 
Jonelle Marte covers the economy, jobs and other personal finance topics for MarketWatch.com and WSJ.com