5 Great Ways to Save Your Tax Refund (Plus 1 to Spend It)

Chalk it up to the lingering economic malaise and a nation still shell-shocked by the worst recession since the Great Depression: More Americans this year plan to sock some of their tax refund away in savings, according to a new survey by The National Retail Federation.

Indeed, 43.8% of taxpayers expecting refund checks will funnel a portion of that money into savings, up from 42.1% last year, and the most in the survey's nine-year history. The second-most popular use for those windfall checks from the IRS: paying down debt (39.4%).

About two-thirds of taxpayers are expecting a refund this year. If you're among the group due a refund and aim to save some or all of it, here are a few smart ways to stash that cash.

1. Contribute to Your Retirement Accounts

If you haven't yet put money into your traditional IRA or a Roth IRA retirement account for 2011, you can still do so until April 17. That's a wise way to save some of that tax money, says Jessica James, CPA and author of Justice for None, which examines IRS tactics in a tax fraud investigation and trial. The maximum IRA contribution for 2011 is $5,000, or $6,00 if you're 50 and up by year's end.

If you're self employed and have a Keogh or SEP retirement account, you can get a filing extension to Oct . 15, which will give you until then to make a 2011 deposit from your tax refund. The maximum contribution to an SEP or Keogh for 2011 is $49,000.

2. Maximize Your Flexible Spending Contributions ... While You Can

In 2013, The Health Care Act will curb the maximum amount you can put into your Flexible Spending Accounts, those medical expense accounts that enable us to use pre-tax earnings to pay for medical costs not covered by health insurance.)

Sadly, 2012 is the last year we'll be able to use an FSA to pay for an orthodontist, for example, among other big medical expenses that are often not covered by insurance. So stashing some tax refund money into your FSA is a wise way to save that won't be around next year, James says. Assuming your real tax rate is 25% (about average), you avoid $25 in taxes for every $100 you funnel through your FSA.

3. Buy Savings Bonds

The IRS makes it easy to buy U.S. Series I Savings Bonds for yourself or anyone else with a portion of your tax refund. These low-risk bonds, issued by the Department of the Treasury, grow in value for up to 30 years. "While you own them they earn interest and protect you from inflation," according to IRS.gov.

Tell your tax preparer you want to buy savings bonds with part or all of your refund. Or, if you prepare your own return, file Form 8888. The IRS offers detailed instructions here.

In any single calendar year, you can purchase up to $5,000 of I bonds under this program.

4. Stash Away Cash for a Summer Vacation

While saving money for retirement is key, having a sum set aside for leisure activities can serve as an investment in your emotional well-being. "You know you're going to want to have some fun when July or August roll around and the kids are hanging out around the house saying, they're 'soooo bored!'" savings expert Lynnette Khalfani-Cox of financial advice blog AskTheMoneyCoach.com, tells DailyFinance. "So why not put aside a little cash now for a family getaway when the temperatures rise? Even a long weekend getaway can be a welcome break when you've saved for the trip, didn't put the expense on a credit card, and aren't stressed about money."

5. Start a Goal Fund

Ponder a mid-range goal that you want to reach in one to three years, then plan to put some of that refund check toward it, Khalfani-Cox suggests.

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"Maybe you want to buy a new house, purchase a car or just have the money to give your daughter a Sweet 16 bash she'll always remember. Whatever the goal, get cracking on it now. Procrastination is the enemy of being a good saver," she says. "Besides, the IRS says the average tax refund check is more than $3,000. So a hefty tax refund check can go a long way toward helping you to meet an important personal or financial goal."

A Different Sort of Saving: Donate to Charity

It's traditionally during the end-of-the-year holiday season that our thoughts turn to charity, and that's when "many of us start giving away clothing, food and other items to those in need," Khalfani-Cox says.

Consider donating some of your refund check to a favorite cause, she suggests. "By [contributing] a portion of your tax refund check, you could bring a huge smile to underprivileged children, domestic abuse victims in a women's shelter or even elderly patients in a hospital. The amount you give doesn't have to be huge either. A thoughtful cash donation or using your money to buy something they'd want or need would undoubtedly be so very appreciated."