Individual Retirement Accounts, (IRAs) are a worthwhile savings option to consider, regardless of how far away your retirement is. An IRA allows the individual the opportunity to save money for retirement while enjoying some very nice tax benefits. Most young people think, “Well, retirement is such a long way off for me, I don’t have to think about that until much latter. Besides, only old people save for retirement.” This statement couldn’t be farther from the truth! In fact, as long as you are earning income, you don’t even have to be an adult to open an IRA.

Many financial institutions offer IRAs. The two most common types are Traditional and Roth.

With the Traditional IRA you might qualify for tax-deductible contributions. This means that when you file your income taxes each year, you won’t have to pay taxes on the money you deposit into your IRA. In addition, with the Traditional IRA, your earnings as well as contributions will not be subject to income tax until withdrawal. This means that the money in your IRA will not be touched by Uncle Sam until you withdraw it, which is a good thing, because if more money stays in your IRA, more earnings will accumulate from it.

The Roth IRA is different. You invest your money, which has already been taxed, and when the time comes to make withdrawals, your contributions and your earnings remain tax-free.

Many people say the Roth IRA is better than the Traditional, and I would have to agree. Since you’ve already paid taxes on the money you’ve deposited, you won’t have to worry about taxes in the future. And if there are tax increases in the next 30 or 40 years, you won’t have to pay a dime of the difference. Also, with the Roth IRA, the money you gain from your contributions will be tax-free!

What will your future look like after you retire? Will your lifestyle be modest and your budget poor? Or will you enjoy doing new activities and living in comfort? The choice is up to you.

Ah, tax season… For some this time of year is a dreaded part of life, while for others it’s something to look forward to. Getting that tax refund in the mail, knowing that you have some extra money on hand to do whatever you want with– it’s so exciting! But before you get your refund it would be a good idea to have a plan for what you’re going to do with that money. Whether you want to invest it, save it, use it to pay down debt or spend it and buy a new big screen TV, it’s wise to know what you want to do with it before it comes. Otherwise that money may just sit in your bank account to be eaten away with ice creams and coffee.

Here are some ideas to help you decide what to do with your 2009 Federal Income Tax refund:

Start an Emergency Fund

Financial advisers will tell you to create a fund with enough money to sustain you for a period of three to six months. This is especially wise in times like these, when it’s uncertain whether many of us will still have a job in the coming months.

Where you put this fund is up to you, though it would be better to have it in a place where it’s hard to “borrow” from. My wife and I have an online savings account with ING DIRECT. It’s a very practical account that links right to our bank account, but the best part is the interest payouts. There are other online banks that offer high interest as well. Here are a few to compare:

Bank of Internet – With the High Yield Savings account earn 2.06% APY (annual percentage yield). There is a minimum deposit of $100.00 to open this account but after that there are no account minimums or fees. *

HSBC Direct – Open an Online Savings Account with as little as $1.00 and earn 1.55% APY. There are no regular monthly or transaction fees with this account, though other charges may apply, such as non-sufficient funds, stop payment order, and return item fees. *

ING DIRECT – The Orange Savings Account offers 1.50% APY with no fees and no minimums. *

* Annual Percentage Yield (APY) is variable and subject to change without notice. Information from www.bankofinternet.com, www.hsbcdirect.com, and www.ingdirect.com is accurate as of 06/20/09.

Pay Down Debt

Another good way to use your refund is to pay down debt. If you have credit cards, a car payment, or a home loan, pay extra toward the one with the highest interest rate.

College Savings

If you would like to attend college in the future or if you have kids and want them to have the option of going to college, consider opening a 529 college investment plan. CollegeSavings.org is a site where you can find and compare plans that best fit your goals.

Retirement Savings

Use your tax refund to start or add to an Individual Retirement Account (IRA). A Roth IRA is of particular interest, as the earnings accumulate tax-free and remain tax-free even after distribution (when you withdraw funds).

Large Refunds Aren’t As Cool As They Seem

As fun as it is to get a huge lump sum from the government each year, just remember that they’re actually just paying you back for the interest-free loan you gave them throughout the previous year. Every paycheck the government takes out a little bit more then you owe them, then in the spring they pay it back without interest. If you’re receiving a large tax refund you should ask your employer for a new W-4 form so you can adjust the withholding allowance to receive that money in each paycheck. However, be careful not to allow too much money to be taken out of your paycheck– you do want a little bit of a tax refund; otherwise you’ll have to pay some at the end of the year plus fees.

A lot of people prefer to have a larger refund rather than getting that money in their paychecks where it would probably get spent on something or used for bills. If this is an issue, consider having that money direct-deposited from your bank account into the investment fund or high yield savings account of your choice. That way, after every payday, the money is gone from your account before you get your hands on it.