Best Uses for Your Tax Refund

As April 15 approaches, MoneyWatch is publishing daily tax tips. See the full list here, and please check back frequently for the latest advice from our experts.
The early tally for this tax season is that the average refund check cut by Uncle Sam is a record $3,036; 10% higher than last year. Folks who have signed up to get their money via a direct deposit are pocketing even more: $3,232 on average. Here are some smart ways to put your refund check to work for you.

Best Uses for Your Tax Refund: The Obvious Stuff
Let's quickly dispense with the obvious stuff that I am professionally obligated to mention:

• Tackle credit card debt: As if this needs any explaining.
• Pay Off (Down) the Car Loan: Ditto.
• Max Out on the 401(k) and IRA contributions. This is the Retirement Beat blog, so what did you expect?
• Emergency Fund: Yes, you have one. But is it big enough? The old three-months-of-living-expenses rule seems depressingly insufficient in a world where the unemployed need about six months on average to land their next job. And while we're on the topic of having money set aside for the unexpected "uh-ohs" that have a habit of cropping up when least financially convenient, you must read Stacey Bradford's tally of the cost of dealing with a bedbug outbreak. Spoiler alert: $15,000. Yikes.

• Automatically Invest in Series I-Savings Bonds: This year marks the first time that you can opt to have your federal tax refund automatically invested in I-Bonds. ($5,000 max if you do this through your federal tax refund.) If your biggest investment hurdle is inertia, then let Uncle Sam get you over the investing hump.
• Burnish Your Resume. We're all on the same page about the need/desire to delay retirement. And that's an argument for giving your career a mid-course tune-up. From taking classes to footing the tab to head to a useful industry conference that will jump start your stalled networking, investing in your professional self today is a smart way to ensure you can extend your career as long as you want.
• Fund a Health Savings Account. If your family's current health insurance comes with a deductible above $2,400 ($1,150 for individuals) you can set aside money in an HSA to cover your health-care expenses. The money you put in your HSA will be tax-free as long as you use it for qualified medical expenses. The best HSA feature is that any money you contribute that isn't used up by the end of the year can stay put and just grow for future years. (There's no annual use-it-or-lose-it feature that you face with an FSA.) With out-of-pocket retiree medical expenses above and beyond Medicare clocking in at $250,000 and higher, an HSA ranks as a great use of today's refund check. In 2010 a couple can invest $6,150 in an HSA ($3,050 for an individual.) You can add another $1,000 to your annual contribution if you are at least 55 years old.
• Hatch Your Kid's Retirement Nest Egg. You can jump start a child's retirement saving by giving them the money to invest in a Roth IRA. As I explained in a previous post, it's completely legit for a parent to bankroll a child's Roth IRA contribution as long as the child had earned income during the tax year. Help a teen or 20-something put $5,000 a year into a Roth IRA for each of the next five year and you've likely just set them on the path to having $1 million at retirement.
• Take a Vacation. Indulgent? How about essential? Seems to me that a bit of down time is in fact a good career strategy. Burn-out can sabotage your delayed-retirement strategy. You need to recharge the batteries so they will keep you running longer.