How a Tax-Refund Windfall Can Hurt Your Finances

Be careful what you wish for while awaiting your refund, and don’t give into recklessness.

Color photo of a vintage, metal Uncle Sam bank holding a card that says, "BIG REFUND!!!
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2. Fund your retirement account. "Time is running out to fund this year's accounts," says Batchelder. But even if you get a refund after April 15, he says, you can still take advantage of tax-deferred savings on your IRA for the entire year, and the allowance rises $500 for 2013. The tax deduction of up to $5,500 for 2013 (or $6,500 if you are over the age of 50) can be taken in the following tax year.

3. Fund an emergency savings account. Putting aside your tax refund in an emergency account can help tide you over should a job loss or unexpected expense occur. The Employee Benefit Research Institute reports that only half of workers say they could definitely come up with $2,000 if an unexpected need arose within the next month. Financial planners say a rule of thumb is to have six months of expenses covered by an emergency fund.

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Many people are refraining from splurges, according to the American Express survey that showed more than half of people are still saving and paying down debt in a "recession mentality," said Melanie Backs, spokesperson for Amex. Backs sees a silver lining in this year's defense-minded personal finance playbook. As things get better, "people are feeling more confident," she said. But even as the recession fades to memory, they are resisting the urge to overspend at the expense of financial security. "They learned some valuable lessons," Backs said.

Still, nearly everyone has the urge to splurge, says Batchelder. If you do want to stroll the mall, avoid the travel agent and big-ticket purchases. His sage advice at that point: "Go get an ice cream cone. That won't mess up your future."