I recently wrote a post on a survey that asked Americans about their plans for using their tax refunds. In the comments, the age-old debate about tax refunds erupted, and I thought, "Why not write about it here?"
Some taxpayers get giddy when they see a fat refund from the IRS. These refund fans claim that having Uncle Sam hold onto the funds year-round is a way of forced savings, and that their financial life is better because of it.
Then there are those who feel that practice is, well, stupid. You know the old bit about giving Uncle Sam an interest-free loan. Why tie up your money with Uncle Sam if you could have it in your own hands, able to save or spend it however you please all year round?
I wrote an article years ago about this ages-old debate.
Michael Rowan, whom I profiled in the 2006 story, summed up the benefit of receiving a large refund quite nicely.
With a large refund, ""the odds you're going to fritter that away are a lot lower. It's like having $100 in your pocket or a
fistful of fives."
He put 50 percent down on a cabin and has purchased cars outright thanks to the intentionally large refunds he received over the years.
During an era of higher interest rates, I sided with the refund-phobic. But with rates on "high-yield" savings accounts hovering around 1 percent, you can't argue that people who receive a tax refund are missing out on major money making opportunities, at least on their safe money. Rates on mortgages and other loans are still low as well, so paying down that tax-deductible debt early isn't as compelling.
