Was Your Tax Refund Too Big?

By Jon L. Ten Haagen, CFP




Huntington’s Jon L. Ten Haagen, CFP*, runs Ten Haagen Financial Services, Inc., a full-service independent financial planning firm – and now, he is here to answer your questions!

In this bi-monthly column, Ten Haagen will answer your financial questions and help you with his expert financial advice. Don’t be shy – our expert is here for you, so feel free to ask away!

E-mail your questions to asktheexpert@longislandergroup.com today, and let our expert help you!


I just got a big tax refund – oh, joy!

Not so fast. Let’s think about this. Do you realize you have given the U.S. government (IRS) an interest-free loan for the year? That is worse math than putting your money in a bank savings account which is paying you 0.01 percent. The average annual tax return for 2014 was $3,100. That is $258/month that could go in your pocket and be your investment for your future!

Let’s look at some of the things you can do with your refund which really do not benefit you, but I guess it is better than flushing it down the bowl: buy the biggest TV you can find (but remember there will be a better model out by the time you hook it up); get a big fancy limo to take you across town to your favorite restaurant; pay for a professional decorator to do the outside lights on your house for the holidays; buy designer glasses, shoes, handbags and outfit which will be on the sale rack by tomorrow; have a fireworks display for your family and your neighbors; stuff the dollar bills under your mattress (if the rustling of the bills when you roll over won’t wake you up); throw a lavish birthday party for your one-year-old (who will not remember it at all); buy an above-ground pool so you can buy more liability insurance; or finally take a trip to Atlantic City (you know you are so lucky at craps!).

On the other hand, you can do something very special for yourself. One idea is to call your CPA or tax person and have them change your deductions so you pay or get back no more than $500. Talk to them about any life changes that may be coming up that could affect your deduction levels – things like starting a new job where your income level will change (hopefully up!), owing lots of taxes last year, starting your own business, doing freelance work, or any major life changes like marriage, having a child, a death in the family, or a divorce. Use the IRS withholding calculator at www.irs.gov to get a good idea of your deduction levels.

Some other positive ideas of what to do with your refund include: upgrading something on your house (like new siding or windows); adding to your retirement fund (IRA, ROTH IRA or 401k); taking courses that can help with your career path; refinancing your mortgage (rates are still low and over the years this can save you a lot); starting or adding to an emergency fund; starting an education fund for your child (it is never too early to start!); paying down debt, especially if it is from credit cards; seeing if you have proper insurance coverage for you current circumstances; or making charitable donations.

Perhaps the best buy would be to work with a Certified Financial Planner (CFP) who will work with you to create a proper investment plan for you and your family’s future. A CFP can also help you stay focused on the long term when the markets get squirrelly and the media is trying to make you emotional and short-sighted. A CFP will help you to do periodic reviews to see that you are on track and to see if your insurance still meets your current needs. They will help you periodically review your beneficiary designations and review your will in case of life changes such as a birth, a death, a divorce, a marriage or an inheritance, and – if you are really fortunate – how to handle the lottery prize you just won.


*Ten Haagen is an Investment Advisor Representative offering securities and advisory services offered through Royal Alliance Associates, Inc., member of FINRA/SIPC, and a registered investment advisor. He is also an active community member, serving on several nonprofit boards and as executive officer of the Greater Huntington Boating Council.

Disclaimer: This column is intended for informational purposes only and is not a replacement for professional services. The author and this newspaper are not responsible for the outcome of following this advice.