Schwab Offers Advice for Maximizing Benefits From Tax Refunds

Wednesday, April 29, 2009 6:05 am PDT



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SAN FRANCISCO--(BUSINESS WIRE)--As of Feb. 27, 2009, the average individual tax refund was $2,869, according to the latest IRS filing statistics. What should people do with the sudden influx of cash? Historically, nearly one-third of tax-payers have used their refund for major purchases or to cover everyday expenses, but the Schwab Center for Financial Research is urging people to prioritize their financial goals and take full advantage of the benefits of their return.1 For those receiving tax refunds this year, Schwab has several recommendations to help make the most of it:

  • Maximize any 401(k) match. Schwab recommends that people contribute at least enough to their 401(k) or similar plan in order to get the full company match. Most 401(k) contributions are deducted from pre-tax income, enabling people to keep more of their earnings each paycheck and have savings grow tax-deferred until retirement.
  • Pay down high-interest debt. Committing refund money to paying down debt will make it much easier to reach savings goals. To increase savings, create a budget and look for ways to cut back on non-essential expenses. Use that extra money to make more than the minimum monthly payment on high interest credit cards or loans. You can also try negotiating with credit card companies for a lower interest rate.
  • Establish an emergency fund. Without an emergency fund, Americans are at risk of dipping into retirement savings or taking on more debt if they need quick access to cash. You should save enough to cover three to six months of essential living expenses. Use the refund to open a high yield savings or investor checking account to house an emergency savings fund that is also easy to access when you need the cash.
  • Take advantage of tax-advantaged retirement accounts. Now more than ever, individuals are responsible for their own retirement security. Use the refund to jumpstart your retirement savings by contributing to a traditional or Roth Individual Retirement Account (IRA). Remember, for 401(k) plan participants who are recently unemployed, changing jobs or retiring, rolling your retirement savings from an old employer’s retirement plan into an IRA can help maintain the tax-deferred savings status and avoid penalties.
  • Invest in a college fund. College savings accounts such as a state-sponsored 529 plan or Coverdell Education Savings Account offer tax-free investment growth potential as long as withdrawals are used for qualified education expenses. A $2,000 refund saved in such a plan today could more than double in 10 years.

For More Information

For more detailed information on these recommended savings strategies and for links to interactive calculators and educational content, please visit And for more information on how saving and investing can add up over time, as well as what it takes to pay off debt, visit the calculators at

About Charles Schwab

The Charles Schwab Corporation (Nasdaq:SCHW) is a leading provider of financial services, with more than 300 offices and 7.4 million client brokerage accounts, 1.5 million corporate retirement plan participants, 468,000 banking accounts, and $1.1 trillion in client assets. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC,, and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Advisor Services division. The Charles Schwab Bank (member FDIC) provides banking and mortgage services and products. More information is available at

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc. The information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. (0409- 8667)

1 National Retail Federation 2009 Tax Returns Consumer Intentions and Actions Survey.


Charles Schwab
Matt Hurwitz, (415) 636-3700
Jennifer McClellan, (212) 704-4567

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