Retirement & Financial Planning Report

In 2011, taxpayers received an average refund of $2,913. If you get a refund this year, you can use the money to help reach your financial goals. Here are a few suggestions:

* Fund your IRA. You can contribute $5,000 to an IRA for 2011 until April 17, 2012. If you were 50 or older last year, you can contribute $6,000.

When it comes to IRAs, workers face a catch. To deduct your contribution to a traditional IRA, you generally must have a relatively low income. With a low income, however, your tax deduction is less valuable because you are in a low tax bracket. Therefore, you may be better off funding a Roth IRA instead. You won’t get a tax deduction but you will be eligible for tax-free withdrawals after five years and after age 59-1/2.

* Fund a 529 college savings plan. There’s no federal tax deduction but many states offer state tax deductions for residents who invest in their home state’s plans. With any 529 plan, investment earnings are tax-free and withdrawals also may be tax-free if you’re spending money on the beneficiary’s higher education.

* Fund a bank CD. Yields are low but bank CDs are super-safe, thanks to federal deposit insurance. If you’re hoping to buy a house or a car or another big-ticket item in a year or two, you’ll preserve your money and earn a little interest with a CD. Check bankrate.com for the highest current CD rates.