GUEST COLUMN: Use your refund wisely

Columnist provides some options for investing your tax refund long-term

Congratulations on your tax refund.

Now that you’ve got it, what should you do with it?

You could spend it  or you could use it in other ways that will be more beneficial to your longer term financial future.  Let’s look at a few good alternatives.

Use it to make your 2012 RRSP contribution right now and you’ll get the benefit of nearly an extra year of potential long-term tax-deferred growth and a tax deduction against next year’s taxes.

Put it in a TFSA.  You are allowed to save up to $5,000 a year in a tax-free savings account.

Your contributions are not tax-deductible but you will not be taxed on the investment income generated by your TFSA and you can re-contribute any of your tax-free withdrawals in a future year.

Invest it.  If your RRSP eligible investments and TFSA are topped up, consider adding to your non-registered investments. It’s a sound strategy to hold stocks and equity mutual funds outside RRSP eligible investments or a TFSA because these types of investments are taxed at a more favorable capital gains inclusion rate and Canadian investments qualify for the dividend tax credit.

Set up registered education savings plans (RESPs) to fund future education costs for your kids. RESP contributions are not tax-deductible but their growth is tax-deferred and they qualify for Canada education savings grants (CESG), one of up to 20 percent of your contribution.

Pay down costly credit debt with high interest rates and then pay down non-deductible debt such as your mortgage.

A single prepayment could potentially save hundreds or thousands of dollars in interest payments.

Got a large refund? Consider parking that cash in a short-term investment that you can access without penalty.

You’ll have a ready source of money for a rainy day or maybe a new car without having to borrow or use your credit card. (You can also use a TFSA as a rainy day fund.)

A tax refund might put a little extra money in your pocket once a year.

A comprehensive tax-reducing financial plan definitely puts you on track to achieve your life goals. Talk to your professional advisor about how to make it work for you.

Andy Erickson is with Investors Group in Vernon. This column, written and published by Investors Group Financial Services, presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances.