updated 4/12/2006 12:02:19 PM ET 2006-04-12T16:02:19

Jennifer Butler used most of her savings last year as the down payment on her first apartment. So she's decided that her federal income tax refund this year is going straight into a Roth IRA, a tax-sheltered retirement savings account.

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"Saving is important to me, but I couldn't do much last year," she said. "Now I'm trying to build back up."

Butler, a senior account executive with the New York media relations firm Manning, Selvage & Lee, said she signed up with the IRS to have her refund automatically deposited, "so I've been checking my bank account every morning so see if it's there."

Millions of Americans soon will be getting their federal and state tax refunds, and that bonanza of bucks likely will burn holes in some pockets. But experts say the best uses for the "found money" may be paying down credit card debt or plumping up college or retirement savings accounts.

This year, according to the IRS, about 80 percent of the taxpayers who filed their federal income tax returns by mid-March claimed a refund. The checks they'll receive are averaging $2,380, up about 4 percent from last year's average of $2,290.

Many consumers say they'll save at least part of their refund, according to a survey conducted by Roper Public Affairs for TrueCredit.com, a credit monitoring service. Others planned to purchase something they need, pay down credit card bills or fund this year's vacation.

"I think they have the right idea about saving and paying down debt," said Lucy Duni, director of consumer education for TransUnion's TrueCredit.com division. "But it's about sticking to it and staying away from the large screen TVs and other temptations."

It seems many consumers do make careful plans for using their tax refunds, whether it's to boost savings or to purchase something they couldn't otherwise afford.

Jennifer Floro and her husband, Vern, who is in the Air Force, will use part of their refund to replace the carpeting in their home in Niceville, Fla.

"We're a military family so we move around, and we try to do home improvements to improve the resale value," Floro said.

Floro, who works as a media specialist with the PR Newswire, said that investing in property is part of the couple's retirement savings strategy. She and her husband already own a rental unit in Nevada and will save the balance of their refund, "possibly toward buying another investment property."

For Kasey Broach, an account executive with CKPR in Phoenix, there was no question but that her refund would go to buy something she badly needed — a new computer.

"I knew my computer was going to be dying any day, and I really had to have a new one," she said.

Broach, said she often works at home and also must do papers and other projects for the masters in business administration program she's enrolled in.

"In the future, I'd like to be able to set it aside, say for a condo," she said. "But right now, being able to pay for a computer was the best thing for me."

Bernie Kent, a personal finance partner with PricewaterhouseCoopers private company services in Detroit, said consumers should weigh their own needs to determine how best to use a refund. Here is his suggested order of importance:

  • Pay down any high-interest credit card debt first.
  • If you're required to make estimated quarterly tax payments, apply your refund toward the next quarterly bill.
  • Look at your long-term savings goals. If you have children, you can fund a college savings account. Or you can save for retirement with an Individual Retirement Account or a taxable investment account.

Kent points out that many people who get large refunds are doing so because they're having their employers take out too much each month toward federal and state taxes. That essentially gives the government free use of the money until it's refunded.

"An alternative might be to lower your withholding and take that dollar amount and put it in a separate account, apart from your regular checking and savings accounts," Kent said. "You'd end up with the same result at the end of the year, except you'll be getting the interest instead of the government."

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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