Tax Season: The Perfect Time to Jumpstart Your Wealth Building Plan

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Building wealth over the long-term is about discipline, common sense and patience.

Yet a little opportunistic investing and saving never hurts, either.

For many of us, tax season represents one of our best opportunities to give our wealth building plan a serious jolt.

Yet human nature doesn't always lend itself to smart planning. When we come into extra money, we often take temporary leave of our senses. We fantasize about luxury vacations. Flashy consumer goods. Fleeting pleasures.

In reality, this is the worst time to give in to those impulses.

So what should you do with your tax refund instead? Let's find out.

Refund and rollover -- the investment option

Thelma and David Ward's tax preparer didn't believe it.

According to her calculations, the North Carolina couple was due to receive a federal income tax refund of epic proportions.

Just how epic? A staggering $54,000.

The Wards were so thrilled when they heard the news, David Ward danced around his living room in celebration.

Ward had good reason to dance. That $54,000 represented more than he and his wife earned that year.

The Wards' tax preparer later told a Daily Mail reporter she had to check the return "15 times" to ensure it was accurate.

As it turns out, the Wards were the beneficiaries of a new tax change that allowed adoptive parents to receive a one-time credit of more than $13,000. With rollovers from previous years added in, the couple received the largest refund in U.S. history.

Most of us aren't quite so fortunate.

According to data from the IRS, the average American receives around $3,000 from Uncle Sam each year. Not exactly life-changing money. Yet that doesn't make it any less important.

Even relatively trivial amounts of money can grow into vast sums if compounded on a long enough timeline.

Let's say your average refund is around $4,000 and you decide to invest it in the market every year for 20 years. If your return is in line with the S&P 500's historical average (around 10-percent), you're going to be sitting on almost a quarter of a million dollars after 20 years. In 30 years you'd have in excess of $600,000.

Those are powerful numbers. They represent the kind of wealth that secures a happy and stable retirement.

That kind of math should get anyone's attention.

Putting your debt on a diet

Simply rolling over your refund into your portfolio is an extremely potent wealth creation strategy. Yet it's hardly the only effective approach.

If you're saddled with debt, tax time is prime time to change that state of affairs.

Let's face it -- you can't effectively build a nest egg if you're drowning in debt. A large portion of every dollar you save or earn is going to service your debt.

Do you have "bad" debt like higher interest credit cards? Then paying that debt down should be a top priority.

Let's do a bit more math. Say you have a credit card with a 10-percent interest rate and a $15,000 balance. Now say you're making $200 monthly payments to service the debt.

How long will it take to pay the balance off? Almost 10 years. Yet a one-time, tax refund season payment of $4,000 will shave nearly four years off that timeline. That's the power of smart saving.

Bad debt is an albatross. It weighs you down like a stone. It sabotages even the best-laid wealth building plans.

By saddling yourself with debt, you're attempting to amass a personal fortune with one hand tied behind your back.

There are no awards for degree of difficulty in the wealth building game. So do yourself a favor and detoxify your debt situation.

Opening an IRA

The IRA is one of the most powerful wealth creating tools around. Tax season offers a fantastic opportunity to take advantage of its benefits.

You can contribute up to $5,500 per year into your IRA in 2015. If you're 50 or older, you can go even higher -- $6,500.

IRAs offer significant tax advantages. A traditional IRA allows you to kick in pre-tax dollars. You then pay taxes on withdrawals during retirement. A Roth IRA essentially reverses that scenario.

Either way, both are a great way to build wealth for the long run. If you use your refund as a mechanism to fund your IRA each year, you'll quickly be ahead of the game.

Saving for a rainy day

One of the reasons we build a nest egg is to have ready access to cash should the need arise. Life is unpredictable -- even the most rigorous and disciplined wealth builder can fall prey to poor health or an unforeseen financial setback.

If you've been lax in this area, tax refund season is the time to rectify the situation. After all, it's hard to be aggressive or take smart risks without some kind of safety net.

By saving money now, you're providing yourself with future flexibility -- and the peace of mind you need to take smart risks.

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