Jean Chatzky TODAY Financial Editor • Profile • E-mail

I receive hundreds of e-mails and letters each week — and it often seems that no topic is off limits. You ask about getting out of debt. You want to know how much you need to put in a retirement fund in order to be able to, in fact, retire. You want to hash out the minutia of life insurance. Sometimes, you just want to take a break and meet for coffee (believe me, sometimes I do too.) But there is one theme that I find thought: You all want to save more than you are saving now. It seems a universal goal: To find a little extra money to put away in an emergency fund, a retirement plan, or a money market account.

This presents two challenges. Where do you find some extra money? And then where do you put it? Let’s tackle the money first.

For many Americans, if not the largest than one of the largest chunks of money received all year is their tax refund. In fact, the average refund amount issued by the IRS each year exceeds $2,000. Maybe you generally don’t get quite that much — or, maybe, you get even more. Either way, can you remember where last year’s check went? Into home repairs? Your cars gas tank? A vacation? Or are you scratching your head?

What you probably didn’t do is invest it in a 401(k), IRA, or other retirement fund — or even deposit in a savings or money market account. Why? Because that wasn’t especially easy. The IRS has offered direct deposit for years, but previously you had to dump the entire check into a single account. So you very likely put it in checking where you used it to run your life instead of fund your future.

That’s not the case anymore. At the end of August, the IRS announced that starting next year taxpayers will be able to split their refunds among up to three different accounts at three different financial institutions. This means that no matter what amount your check is made out for, whether it’s $200 or $2,000, you'll be able to save a portion without feeling as though you’re ignoring the needs of your wallet.

“The split refunds are going to help people with low — to moderate — incomes who have a hard time saving by allowing them to put some of it away without committing all of it. There is an enormous potential here for a lot of households,” says Bill Gale, a senior fellow at the Retirement Security Project (RSP), one of the groups that pushed hard for the change. As for where to put that money, here are a few options. Consider these not only for your tax refunds, but for your birthday loot, holiday gifts, annual bonuses — in fact — for any occasion when you happen to come upon some extra cash:

• Money market accounts: These are a great option if you don’t want to stash your cash away and toss the key, so to speak. You can house an emergency fund in one of these, which often carries a higher interest rate than a traditional savings account, but you’ll be allowed to make withdrawals from the account without penalty (the typical allowance is up to six per month). Note: If you have willpower issues, it may help to turn down that ATM card that the bank will offer you with the account.
• Individual Retirement Account (IRA): Especially if you don’t have a 401(k) at work (but even if you do), socking the money into an IRA or Roth IRA and then investing it in a diversified portfolio of stocks or mutual funds gives it the potential to grow even faster than it would in a money market. That’s not only because you can capture market returns but because it grows tax-deferred until you withdraw it at retirement (in a traditional IRA, where contributions are not taxed) or tax-free (in a Roth, where contributions are).
• Coverdell Education Savings Account: If your company offers a 401(k) plan and you're already maxing it out, you may want to think about contributing a portion of your tax refund to a college fund for your kids. A Coverdell education savings account is an account that you can use to stash up to $2,000 a year, allowing the money to grow tax-free. Your child can then withdrawal the funds, also tax-free, if he uses them toward college tuition. But as I've said in this space before: Saving for retirement should always come before saving for college.

Money Matters with Jean Chatzky Financial resilience is key in unsure times 4 tips to stave off financial angst Choose a smart option to save for college costs Stay afloat in a shaky economy 6 tips to maximize your savings

Finally, one more incentive to get you to think — seriously — about saving. The government just made the Saver's Credit, originally set to expire this year, permanent. This is an incentive program for moderate to lower-income workers who participate in 401(k) or IRA plans. It provides a matching contribution from the government for voluntary deposits made to these kinds of retirement accounts. You can contribute up to $2,000 per year per individual ($4,000 per couple). Based on your income, you'll receive a tax credit for up to 50 percent of the contribution you make.

Jean Chatzky is an editor-at-large at Money magazine and serves as AOL's official Money Coach. She is the personal finance editor for NBC's "Today Show" and is also a columnist for Life magazine. She is the author of four books, including "Pay It Down! From Debt to Wealth on $10 a Day" (Portfolio, 2004). To find out more, visit her Web site, www.jeanchatzky.com.

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