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Old 01-25-2013, 08:07 PM   #31
ICF
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Originally Posted by Jeff_G View Post
Think about this, a $5000 refund would equate to an extra $445 in your paycheck each month. That is a car payment...

Invest that same money inside your Roth Ira in a good mutual fund for 30 years and you would have $1,570,811.63 to retire on.
It's actually $416 / mo -- but that's not the point.

You still get the $5K in either situation -- and can still invest that into a Roth IRA. The only advantage to your situation is taking advantage of dollar cost avg on your investments --- vs putting it in as a one-time lump sum.
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Old 01-25-2013, 10:21 PM   #32
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It's actually $416 / mo -- but that's not the point.

You still get the $5K in either situation -- and can still invest that into a Roth IRA. The only advantage to your situation is taking advantage of dollar cost avg on your investments --- vs putting it in as a one-time lump sum.
Actually, the is another advantage, that can be just as big or bigger than dollar cost averaging: you also have any growth on the investment during the year. If you have it in the stock market, over this past year you would have gotten a nice return. Over the course of 20-30 years, you can actually miss out on a fair amount of money by postponing your investments for 12-14 months.
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Old 01-26-2013, 07:19 AM   #33
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Why not just have the same amount of money direct deposited in a bank account that isn't easily accessed?

One day those refunds aren't coming back. Someone said the federal government doesn't have to balance its budget- at some point it's going to have to. Eventually there are going to be consequences even though the politicians like to pretend there aren't. It's happening right now in Europe and it's naive to think it's not headed here. See also:Scarlet O'Hara.
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Old 01-26-2013, 07:29 AM   #34
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I think I'm going against the grain here, but I disagree with the OP. Giving the government an interest-free loan has never been a good idea, and that hasn't changed. Interest rates may be down on passbook savings accounts, but my investments are still moving upward. Regardless, even if it's a small amount, why would you choose to give it away? If you saw a $20 bill on the ground today, would you walk right by and say, "Nah, it's not worth my effort?" Why is this different?

The real issue isn't about taxes or refunds; rather, it's about self-discipline to commit to a savings plan. If you can't save for a relatively small expense like a vacation, how will you save for your kids' college costs or your own retirement? If you say you'd end up using the money for bills throughout the year instead of saving it, the question may be whether you're living beyond your means.
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Old 01-26-2013, 07:32 AM   #35
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I too think that "it's an interest free loan!" is advice for bygone days. Savings account interest right now is so minimal, if it is helpful for you to get the $ all at once, you might as well. You aren't missing out on hundreds and hundreds of dollars in interest.

We almost always owe because my husband has a large amount of self-employment income, so we pay both halves of social security.
There's different kinds of interest than just from a savings account. There's a lot of different things you could be doing with the money rather than just let the government sit on it.
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Old 01-26-2013, 07:44 AM   #36
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I didn't change my withholdings because of interest or interest free loan or investing or anything. I changed mine because we needed the money to pay bills.

I could care less, I like getting a nice chunk of cash in March to pay for vacation. I have a lot of exemptions and still get $1500 back. I'm not like the others at work though who get $8000 refunds. That's a bit much.
That doesn't really make sense. If you need the money to pay bills, wouldn't it make more sense to reduce your withholding so that you have the money to pay your bills earlier?

I'm another who does my best to end up neither owing nor receiving - and the extra money goes into my investment accounts - starting with my RRSP and TFSA (Canadian retirement account and tax free savings account, respectively) until they are full. That way, I start my tax free savings earlier in the year than I would if I had to wait for my refund.
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Old 01-26-2013, 07:59 AM   #37
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Though it's different for everyone, the situation may be further exasperated if there are debts, like a car loan--or worse yet a higher interest credit card-- that could be paid off sooner, or would be paid off by the refund anyway. Then we are not only talking about foregone interest earnings, but also unnecessary interest paid, which may be 10% or even higher in some cases.
I know quite a few people who struggle with debt,and get a large refund check. I personally feel it's smarter to bring home your income,and utilize as needed. If you don't have enough to save for a vacation throughout the year,then I guess you needed other things more. Like paying for your food clothing and shelter.
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Old 01-26-2013, 08:11 AM   #38
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Originally Posted by mrodgers View Post
I didn't change my withholdings because of interest or interest free loan or investing or anything. I changed mine because we needed the money to pay bills.

I could care less, I like getting a nice chunk of cash in March to pay for vacation. I have a lot of exemptions and still get $1500 back. I'm not like the others at work though who get $8000 refunds. That's a bit much.
Um...if you need the money to pay bills, then get the money back to pay your bills so you aren't paying interest and can pay your bills off faster.
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Old 01-26-2013, 09:15 AM   #39
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I think I'm going against the grain here, but I disagree with the OP. Giving the government an interest-free loan has never been a good idea, and that hasn't changed. Interest rates may be down on passbook savings accounts, but my investments are still moving upward. Regardless, even if it's a small amount, why would you choose to give it away? If you saw a $20 bill on the ground today, would you walk right by and say, "Nah, it's not worth my effort?" Why is this different?

The real issue isn't about taxes or refunds; rather, it's about self-discipline to commit to a savings plan. If you can't save for a relatively small expense like a vacation, how will you save for your kids' college costs or your own retirement? If you say you'd end up using the money for bills throughout the year instead of saving it, the question may be whether you're living beyond your means.
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Old 01-26-2013, 09:29 AM   #40
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I don't like getting a large refund, because I don't trust that the government is always going to return the money...

I honestly wish they would just stop doing withholding at all. If people had to pay their taxes like a monthly bill = they would feel the impact of it more.

Doing the withholding/refund game prevents people from really feeling the burden of paying taxes, IMO.
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Old 01-26-2013, 09:40 AM   #41
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I'm with you. Last year my refund was huge. But I am worse.

The worst part about it is, I had no idea it would be that huge. I thought maybe we'd owe. Our income and situation fluctuate so much I will fully admit I have no idea when it comes to taxes. This year, we may owe. We may get a big refund. I admit it. We're idiots.

Ha, this made me laugh! Back to the OP, for many years, we got huge refunds too. I mean $7000-8500 sometimes. I would use it to smack my CC balances back to about zero. I know, stupid, but saving seemed hard for us, and it sort of worked.

Now, it is complicated, with DH retired from one job, collected some unemployment (which you have to pay taxes on!!), working another job, my 2 PT jobs, etc. Various dedcutions, like college tuition, rebates for new furnace, medical bills. We will see what happens, last year we thought we might owe (!!) but we got a small refund and just owed state about $75.
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Old 01-26-2013, 09:41 AM   #42
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Um...if you need the money to pay bills, then get the money back to pay your bills so you aren't paying interest and can pay your bills off faster.

That's what the poster did, they changed their withholdings because they needed the money to pay their bills
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Old 01-26-2013, 10:29 AM   #43
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That's what the poster did, they changed their withholdings because they needed the money to pay their bills
No, if you read the rest, he said he changed their withholdings so they get a big refund to pay bills and take a vacation.
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Old 01-26-2013, 11:23 AM   #44
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The real issue isn't about taxes or refunds; rather, it's about self-discipline to commit to a savings plan. If you can't save for a relatively small expense like a vacation, how will you save for your kids' college costs or your own retirement? If you say you'd end up using the money for bills throughout the year instead of saving it, the question may be whether you're living beyond your means.
The same way they save for vacations - direct paycheck deductions or automatic checking withdrawals that make the money "invisible" because it never really comes home in the first place. The tax refund-as-savings plan basically does the same thing with vacation/large purchase savings. It is the same reason retirement savings rates are higher for those who have access to 401Ks compared to those of us who actually have to take money out of the checking account to put into the IRA.

Would it be better if everyone had the self-discipline to save without that element of "force"? Sure. But human nature being what it is I just can't fault people who find a way to make it work even if it isn't the method I'd choose.
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Old 01-26-2013, 11:25 AM   #45
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There is no penalty for underpaying your quarterly taxes if you owe less than $1K or if you paid 90% of the taxes owed for 2012 or if you paid 100% of the tax shown in 2011, whichever is smaller.
http://www.irs.gov/taxtopics/tc306.html

If you find that your income is down drastically from the prior year, you can always adjust your last quarterly payment to reflect the reduced income.
Academically I know that, but we were a two-man operation and I did all the books so I tended to err on the side of caution. DH's income was extremely unpredictable too and I just didn't want to get caught owing extra because a big job popped up out of nowhere and messed up my estimates. That's one thing I really don't miss about him being in business for himself.
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