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Make the most of your tax refund

If you’re like most Americans, you’re eagerly anticipating your tax refund this year. According to February 2015 data from the Internal Revenue Service, refunds averaged $3,120 up to that point in the tax season, and eight of 10 taxpayers had received one.

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Here are four ways to use your refund to your advantage.

Pay off high-interest debt

If you receive a tax refund, paying off high-interest debt - such as credit card debt - should be your top priority. Paying 12% interest - or more - on a credit card balance puts a serious dent in the amount you can save toward other financial goals.

If you don't have credit card debt, but do have a car or a personal loan, consider using your refund to pay down that balance. Lowering your debt will likely improve your credit score, which means you'll probably qualify for a lower interest rate the next time you apply for a loan.

Start a retirement account

Saving for retirement remains Americans' No. 1 financial worry, according to Gallup's annual Economy and Personal Finance poll. Retirement concerns topped the list throughout the 2000s.

To stay on top of retirement saving, open an IRA your bank. You can contribute up to $5,500 to a Roth or traditional IRA each year if you're younger than 50 and up to $6,500 if you're 50 or older. The type of IRA you should choose depends on your financial circumstances, including whether you think you're in a higher tax bracket now than you will be in retirement.

Contributions to a traditional IRA are tax deductible, but you'll pay tax on your withdrawals during retirement. Roth IRA contributions aren't tax deductible, but when you retire, you'll receive tax-free withdrawals.

Want to max out your IRA contributions for last year? You can still earmark contributions for the previous tax year, as long as you make them by tax-filing day.

Invest in the stock market

The stock market has been rocky so far in 2016, so you may be wary of getting involved. But consider this: Between 2009 and 2015, the Dow returned 10.08%. Where else could your money have earned that much? And if you invest now, you'll be able to benefit when stock prices rise again.

To make the most of your investment with a minimum of research, work with qualified investment advisor.

Save for your children's education

Everyone would like to help with their children's higher education costs, and states have created 529 college savings plans to help you do just that. Your contributions to the investment account will grow tax-free, provided you use the proceeds for qualified educational expenses.

But don't put your whole tax refund toward your children's college expenses unless you've already maxed out your retirement savings. They have their whole lives to pay off college debt; you have a much shorter time to save for retirement.

Don't get a refund

Getting a refund feels great, but it also means that you're giving Uncle Sam a no-interest loan. Consider adjusting your withholding amounts on your W-4 so you don't get a refund next year. The IRS's Withholding Calculator can help you determine how many exemptions you should claim. Then you'll be able to put that a little extra from each paycheck into an interest-earning savings account.

Contributed by Ellen Cannon, NerdWallet

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