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Investors with sterling financial discipline see big income tax refunds as mistakes. For the rest of us, though, a big refund can be a shot at redemption.

“I remember at the beginning of my career, I would push really hard not to let people get refunds,” said Marc Roland, managing partner at San Diego-based Dean Roland Russell Family Wealth Management. “We don’t want to give the government a free loan!”

A fat tax refund check is the result of overpaying taxes. The conventional wisdom, Roland said, is to visit a financial planner, balance out the taxes paid over the year, and pour the money that was previously overpaid to the government into a retirement account.

But overpaying and receiving a big refund check – an average of about $3,000, according to the IRS – can be an important psychological trick for imperfect investors, Roland said.

If a would-be investor finds themselves spending every drop of their paychecks, overpaying taxes and getting a return “protects” the money from impulse spending.

A tax return can jump-start an emergency savings cushion, Bonneau said. One of the biggest financial fears for Americans, according to a recent Northwestern Mutual survey, is having an unplanned emergency.

“If you get a tax refund, it can be a great opportunity to wipe out the sins of the past,” Bonneau said.

Refunds can take a big bite out of high-interest debt, like credit cards, auto loans and student loans, she said. A large payment eats into the debt’s principal, reducing the interest charged over time.

And if a taxpayer hasn’t yet started investing in their future, the tax return could be the big push they need to start, Bonneau said.

“You have to do whatever works for you,” Bonneau said. “Some people are spenders by nature. They need money automatically taken out. But you have to get out of your comfort zone and think about financial planning.”

Article Courtesy of Mark Grandstaff/USA Today