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This year, Team Halliwell will be like many other American families.


We’re getting a tax refund!


Yes, I know that’s contrary to the conventional financial planning wisdom I’ve championed for years: “Don’t give Uncle Sam an interest-free loan.” But the fact is, for no good reason other than I didn’t get around to fixing it, we had too much tax withheld last year and we’re due a robust refund.


Before the financial planning purists begin plotting to run me out of town, let me just state: I know that getting a large income tax refund is generally a bad idea. It’s even worse for someone who does what I do for a living. After all, it’s not like I don’t know how to manage money or don’t realize that we basically let the government use our money for free over the past year.


But what’s done is done. Now it’s time to move on and make the best of our refund. And since I know a lot of you will be in the same refund boat, I thought I’d share our plans for this influx of cash. Maybe these suggestions will inspire you to equally productive actions.


Our Ideas


  • Kids’ sports and extracurricular fund: The biggest beneficiary of our returned cash will be our kids’ sports and extracurricular fund. Whether it’s basketball leagues, football registrations or sports equipment, the cash going out for these activities seems almost endless in our house. But we’ve got a pretty good idea what these expenses will be and when they’ll happen, so we figure it only makes sense to set aside the money in advance. Then we won’t be stressed out when the next big-ticket expense arrives in our inbox or shows up in one of the kids’ backpacks.


  • Upcoming auto maintenance: My wife’s car is a little over 3 years old, so guess what that means? It means we’re going to get hit with some basic maintenance costs before the year ends. It could be new tires, new brakes or any number of other recommended maintenance items from the owner’s manual. Whatever it is, it won’t be cheap, so we’re going to set some of our refund aside to cover it.


Other Ideas


Those are our big plans, but here are some other ideas you might want to consider.


  • Debt reduction: If you’ve got any high-interest consumer debt, why not get rid of some or all of it with your refund money? It’ll save you a lot of wasted interest and could relieve a lot of stress.


  • Emergency fund jump-start: We typically recommend that people maintain a fund — equal to three to six months’ worth of your basic expenses — to cover life’s unexpected events. If you don’t have one or if yours is less than it should be, your tax refund could be a way to get back on track.


  • Roth IRA funding: While income taxes are top of mind, you might want to give yourself the potential for tax-free income in retirement by using your refund to fund a Roth IRA (assuming you qualify to make the contribution). Far too many Americans have too little saved for retirement, and your refund could help separate you from the crowd.


One last thing: If you decide to follow my lead and set up some of these expense-covering funds, I strongly encourage you to open separate accounts and move money there. That way, it won’t get mixed in with your other money and used for something else.


And if you’re wondering: I won’t be writing this same column next year. I’m taking my own advice – IRS withholding calculator, here I come!


For more financial resources, please see MilitaryOneClick’s Money and Finance Page.