What to do with a tax refund?

Question: We are getting a hefty tax return this year (and yes, I had our tax accountant double check it three times!)-- due to capital gains losses, losses on rental properties we have and loss of income for my husband. It's a hefty 5 figure refund. I just don't know what to do with it. Invest it? But where? Slit that mattress of ours? Money market? Savings? Any suggestions? Nancy, Berwyn, PA

Answer: Please, not in the mattress! It's distressing enough that home safe sales are up during this financial crisis.

Seriously, if I were in your position I'd put the money right into an online savings account (FDIC insured), or some kind of comparable savings account backed by the full faith and credit of the federal government. This way you preserve the value of your unexpected "windfall" while you and your husband figure out the best use of the money. In light of all the economic uncertainty--and the losses you've suffered this past year--you may decide to keep it in a safe place in case you need it. On the other hand, you might want to pay down debt (always a good idea), invest in more education and skills for the job market, upgrade some aspect of your rental properties, or simply spend it in a way that adds to your life experiences.

But while you two talk it over, I would put it in a very safe place like a bank savings account or certificate of deposit--nothing fancy.

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Chris Farrell is the economics editor of Marketplace Money.
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My two cents...

You say hefty 5 figure, presume $25k.

$10k - in online savings, IE, Emigrant Direct or ING - save for rainy day

$5-7500k - in SP500 mutual fund (look at the charts, historically has substantial gains after such corrections, with a return of this size, take advantage of it...)

$5-7500k - additional pmt to child's 529 if applicable - if not, apply to other long term investment option, or pay off car balance or other loan balance/s (nothing like owning your car and not having to make pmts)

$5k - in value oriented small cap fund

All these assume you are out of credit card/equity line/etc. debt. If you have outstanding debt, pay off first, then follow guidelines above.

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