The Best Use of Spare Cash.

When individual clients receive an income tax refund, a bonus, an inheritance or another windfall of other extra cash, they have a number of options. The most prudent choices are investing, putting money in college savings or retirement accounts or paying off debts. By using the following step-by-step approach, CPAs can assist individual clients who are wage earners to make the most effective decisions on what to do with spare cash. Here are the steps: Invest in a 401(k) or 403(b) retirement account up to the full extent of the employer's matching contributions. Pay off debts--beginning with those that have the highest after-tax interest rate. For higher education costs, invest in the client's state section 529 college savings plan up to the maximum amount eligible for state tax benefits. Invest up to the maximum in either a Roth IRA or a deductible IRA. Invest up to the maximum allowed in a 401(k) or 403(b). For additional higher education costs, invest in any state's section 529 college savings plan and/or a Coverdell account. Pay off moderate interest rate debts in order based on the after-tax interest rate. For further retirement savings, consider an annuity. For those who prefer to have cash available, invest in tax-efficient mutual funds such as stock indexes and/or government bonds. Pay off lower interest rate debts in order based on the after-tax interest rate. INSET: EXECUTIVE SUMMARY. [ABSTRACT FROM AUTHOR]

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