Getting a tax refund? Make it grow

By MSN Money staff

What did you do with your tax refund last year? If you spent it, now's the time to redeem yourself. The average tax refund so far this year is a bit more than $2,500 -- a decent chunk of change. Whatever amount you're getting, here are 16 ways to turn it into even more:

Invest it

1. Add to your retirement. Now you're allowed a direct deposit of your refund into your IRA, or individual retirement account. If you're afraid your money will somehow slip itself over to the mall the moment it arrives, Congress is aiming this option at you.

Two things will make an IRA direct deposit easier: contributing to a Roth IRA, because you're not taking a tax deduction; and marking the contribution for the upcoming tax year (financial institutions will assume this unless you inform them otherwise).

If you're depositing your refund into a tax-deductible IRA, make sure you file three weeks ahead of the deadline (six weeks if you file by mail) to make sure the deposit beats the April deadline, too.

Or you could do it the old-fashioned way and simply deposit your refund into your IRA on your own.

2. Pay down debt. Sure, it's not as fun as a new iPod, but knock down the balance of even one high-interest credit card, and you're making money. That's interest you won't be paying, whether on student loans, car payments or any other kind of debt. About half of Americans say this is what they'll be doing with their refund this year.

3. Take stock. Want to pick up a special present for that new grad? How about some stock? Whether you go biotech or blue chip, choose something they use or identify with. "It's a gift that grows over time," says Chris Farrell, author of "Right on the Money." "And it also encourages them to be aware of the stock market and gives them an incentive to follow it."

Or maybe you want to buy into a stock fund for yourself. A $600 investment can blossom into $10,000 if you get a 10% return over 30 years, says Ric Edelman, author of "Ordinary People, Extraordinary Wealth." Try your own figures in our savings calculator (choose "How much will I save?" and click Next).

Even a few hundred dollars can get your nest egg off to a nice start.

"The biggest mistake people make is thinking (what they have) is too small an amount to invest," Edelman says. "Rich people start off as poor people. The difference is they take the nickels and dimes and they invest it -- they didn't spend it all at the mall."

4. Start on that emergency fund. You know you're supposed to build up three to six months of living expenses, but it seems so hard to find the extra cash. How about starting with your tax refund? You'll be less likely to touch the money if it's harder to get to -- in a separate mutual-fund or money-market account, for example.

Smart buys

5. Invest in your home business. Been putting off buying a piece of equipment or some time-saving software that would really boost your home business? It's smart to invest in your earning potential. An investment should save you time, money or both -- so make sure this is a need, not a want.

Also re-evaluate your communications links. If you're wasting time on a slow connection, investigate a cable modem or DSL. You can use your return to cover the higher monthly rates.

6. Buy a computer. Have you been planning to get the family a computer? According to a study from the University of California, Santa Cruz, children who can use a computer at home are more likely to graduate from high school. Fully loaded desktops are now less than $700.

At home

7. Save more for a down payment. With all of the mess over subprime loans and increasingly lenient lenders, you want to be in the best shape possible before buying a home. You may not get to 20% down, but the more the better. For help figuring out a payment that's comfortable for you, not just your lender, read "Don't bite off too much house."

8. Make an extra mortgage payment. If you have a 6% mortgage rate, any extra money you put toward it earns you an instant 6% return on that amount. "For most people, this is better than putting it in a savings account," says Robert Van Order, chief international economist for Freddie Mac. At 8%, knocking an extra $300 off your principal now will save you close to $3,000 over the next 30 years, while $600 will bring you twice as much.

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