10 Ways to Get the Most Out of Your Rebate Check
By now you've heard about the tax rebate check that will be mailed out beginning in May. While the purpose of the rebate is to get people to spend and to stimulate the economy, many people are planning on using this "found money" to pay down debts or to save.
Here are 10 ways to get the most out of your rebate check:
1. Contribute to a Roth IRA. The maximum contribution for 2008 is $5,000 ($6,000 if you are over age 50). You can contribute to a Roth IRA as long as you have earned income and your adjusted gross income is less than $101-116,000 ($159-169,000 for married taxpayers). Roth IRAs are very flexible investments since you can get your contributions out at any time without penalty, which makes Roths perfect for saving for retirement, college, or even a rainy day.
2. Give the money to charity. You can claim a deduction for your gift on your 2008 tax return, if you itemize using Schedule A of Form 1040.
3. Open a 529 college savings plan to fund your own or your children's educations. Withdrawals from 529 plans are tax free as long as the money is used for qualified education expenses, and some states allow a deduction for contributions. If you plan on sending your children to private secondary school, consider funding an Education Savings Account (ESA) instead.
4. If you have credit card debt, use your rebate check to pay off as much as possible. Since the average interest rate on credit cards is over 18%, this could be the best investment you make with your rebate money.
5. Mortgage interest rates are the lowest we've seen in years. If you have a good credit score, now is a good time to refinance your mortgage and/or to combine second mortgages or home equity lines of credit into more attractive loans. Now's also a great time to get out of variable loans. Use your "found money" to pay points and loan costs.
6. Use the money to purchase stock mutual funds at lower prices. While the market has been very volatile lately, there's never been a better time to invest. If you have cash sitting on the sidelines, you could miss the next market upswing. Time in the market matters more than trying to time when to get into the market. If you are investing for the long-term, you can't afford not to be invested in stocks. Remember the old adage, "buy low and sell high." Stock prices are low right now, so get them while they're on sale.
7. Use your rebate money to hire an attorney to update your will. Without a will issues such as child guardianship and disbursements of assets will not be decided by you, but rather the laws at the time. For high net worth families, make sure your estate plan is up to date.
8. Increase your emergency fund. Unfortunately, when the economy slows, job losses and/or business declines are inevitable. That's when you need your emergency fund the most, so make sure you're prepared in case the worst happens.
9. Schedule your annual check ups with your doctor and your dentist. Use your rebate money to pay the deductible and co-payments. Join the YMCA or the local health club, consult with a nutritionist, or buy a piece of exercise equipment (and be sure to use it!). Without your health, wealth is not important.
10. Last but not least, schedule a financial check up for yourself. Annual trips to the dentist, the doctor - and your financial planner - are wise investments. A professional financial adviser can help you see tax loss harvesting opportunities, assess investment options, analyze insurance coverages, and plan for a secure retirement.
Kristine A. McKinley is a CPA, Certified Financial Planner, and author of Living Debt Free. She offers financial and tax planning on an hourly, fee-only basis.
For more articles on personal finance topics such as how to ask for a lower interest rate, and what to do if you don't receive your W-2, please visit http://www.moneywisecoach.com
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