Smart Ways to Spend Your 2013 Tax Refund

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.

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.

Jonelle Marte covers the economy, jobs and other personal finance topics for MarketWatch.com and WSJ.com. 

By MarketWatch