|
The
Check Is in the Mail
Auburn, July 11---The
mailing of federal tax refund checks will begin the week of July 23
and continue through the week of Sept. 24. The refund checks will be
sent on a staggered schedule, based on the last two digits of a
person's Social Security number. For couples, the IRS will use the
first Social Security number listed on the couple's tax return.
There was no time to
verify bank account information for direct deposit of checks so all
checks will be mailed. If you are planning to move in the next few
weeks, be sure to notify the IRS so your check is not delayed, says
Robert White, financial specialist, Family Programs, with the
Alabama Cooperative Extension System. The IRS will also send letters
that will tell taxpayers the amount of their refund.
"There is no need
to pay anyone to figure your refund, and there are no forms to
complete," says White. "At least one company is currently
offering to figure your refund for a fee. Though such a service is
not illegal, it is unnecessary."
The federal tax refund
is a result of a change in the structure of federal marginal tax
brackets. A new 10 percent marginal tax bracket was added, reducing
the tax rate from 15 percent to 10 percent on the first $6,000 of
taxable income for singles, $12,000 for married couples filing
jointly, and $10,000 for heads of households. This translates into a
$300 refund for single taxpayers, $600 for couples and $500 for
heads of households who earn the full amount of income in the 10
percent bracket for their tax filing status. For those who earn less
than the full 10 percent tax bracket, refund checks will be
prorated.
So what are you going to
do with your refund? You might want to put the money in savings as
part of your emergency fund, says White. If you already have a basic
savings plan, then perhaps you should consider investing for the
long term.
Here are several ideas
for investing your refund.
First, there is probably
no better investment than to repay consumer debt (such as credit
card bills). Paying off an 18 percent credit card is equivalent to
earning a 25 percent return for a person in the 28 percent tax
bracket (18 divided by 72 =.25). That is because you would have to
earn a 25 percent return to be left with 18 percent after taxes.
Unlike investments, but like stocks and bonds, the amount that
you'll earn by repaying debt is guaranteed and tax free.
If you have no
outstanding consumer debt, consider investing your tax refund. A
number of low-cost investment alternatives are available. You could
start a mutual fund account. You can add some money to your refund
and purchase U.S. Treasury securities (bills, notes and bonds),
which are available in $1,000 increments, as are unit investment
trusts and corporate bonds.
Don't think a $1,000
investment will really matter? Think again, White says. With an 8
percent return, your money will almost double in nine years. At the
end of 20 years, your onetime $1,000 investment will grow to $4,660.
Check the Web site www.investing.rutgers.edu for additional
investment ideas.
You could also use your
$300 to $600 to fund part of your 2001 IRA or employee retirement
plan, says White. Check the calculators linked to the Web site
www.rothira.com to determine whether a traditional or Roth IRA is a
better choice based on your age, planned retirement date and
marginal tax bracket. You are allowed to contribute up to $2,000
maximum to any IRA or combination of IRAs. In the years 2002 to
2004, the maximum IRA contribution will increase to $3,000 and
eventually rise to $5,000 in 2008 and later.
Another good option is
to invest in yourself or, as economists like to say, "build
your human capital." Take a course or gain other job training
experience to improve your knowledge and skills. It could eventually
lead to a raise or promotion and pay back your tuition payment many
times over.
SOURCE: Robert White,
Financial Specialist, Family Programs, Alabama Cooperative Extension
System (334) 844-2235
|
