MAKING YOUR REFUND COUNT INSTEAD OF SPLURGING, IRS CHECK IS BETTER SPENT ON INVESTMENTS, PAYING DOWN DEBTS.

Byline: Evan Pondel Staff Writer

Bill Sahota is counting the days until his tax refund arrives in the mailbox. His first purchase: a plasma TV.

The Woodland Hills information-technology specialist has been pining for a new cutting-edge television but the price tag of well over $3,000 has put it out of his reach.

``That's what my tax refund is for,'' said Sahota, 36, who expects to receive about $10,000 back from the federal government.

While many people are anxiety-struck with the income-tax deadline looming at midnight Friday, those like Sahota with refunds coming are salivating at the prospect of an otherwise indulgent purchase.

But that's wrong thinking, according to financial advisers. A large tax refund is a rare opportunity to make real strides to long-term financial health and so a little frugality can help transform a tax refund - estimated to average $2,000 this year - into an investment that brings rich rewards in the years ahead.

``If you are fortunate enough to even have a tax refund, take a hard look at your financial profile and assess your goals,'' said David G. Adishian, first vice president for Merrill Lynch in Los Angeles. ``Perhaps you should be investing in your future as it pertains to wealth building and retirement planning.''

In a survey of about 800 people, 59 percent said they will spend their tax refund on everyday purchases and bills, according to the Cambridge Consumer Credit Index, a monthly telephone poll sponsored by Debt Relief Clearinghouse Ltd. A quarter of those interviewed will use their refund to replenish a bank account. Only about 6 percent will channel their refund toward investments in stocks, bonds and mutual funds.

The good news in the Cambridge survey is that, compared with last year's, more people are earmarking their refunds for longer-term investments. That could be a testament to an economy on the mend and ample finger-crossing amid hope that the stock market will improve.

But Adishian said wishful thinking is not the way to go when deciding what to do with a tax refund. Instead, he recommends thinking about investments that require a little discipline now and a substantial payoff later.

A 529 college savings plan is a good place to start. Functioning like a 401(k) for educational purposes, 529 plans are also tax-deferred. Annual contributions hover at $11,000 per person, per child, and the funds can be tapped for vocational, undergraduate and graduate schools.

If college isn't an issue, money can be directed elsewhere, such as a Roth IRA (individual retirement account).

Eric Glade, senior financial adviser with American Express Financial Advisors in Glendora, said a Roth IRA - named after former Delaware Sen. William V. Roth Jr. - is an easy way to prepare for retirement.

Investors can contribute a maximum of $3,000 to a Roth until Friday, when the current tax year ends. You know it better as April 15. The maximum contribution will rise to $4,000 for the 2005 tax season, and those over 50 years old can add on $500.

Paying down consumer debt is another alternative.

Glade said simply chipping away at your debt - credit cards alone carry upward of 14 percent interest - with a couple hundred dollars is a quick and efficient way to invest a tax refund.

But beware. There are ways that a tax refund can actually increase your debt load. Many companies that offer tax services also pay refunds upfront. In return, taxpayers must pay hefty interest on money they will already receive from the IRS, even if it's three weeks from now.

``We live in an instant gratification society. And a lot of people like their money right away,'' said Jordan Goodman, a financial analyst and spokesman for the New York-based Cambridge Consumer Credit Index.

Goodman recommends holding out for the IRS check. If not, ``you might get stuck with an unconscionable interest rate.''

Despite the excitement that mounts when taxpayers find out how much they are getting back from the government, some consumer advocates shun the refund. David Schult, a family and consumer sciences lecturer at California State University, Long Beach, perceives a big refund as a big waste of money.

``A big refund means you are loaning the government interest-free money,'' he said. ``You are letting them use the money when you could be using the money.''

Your mortgage could benefit from the money withheld by the IRS. So can a savings account. But now the government is holding on to your funds for an entire year in some cases. Schult said the money should be gaining interest in a bank account, even if the yield is only 1 percent.

``Your true strategy should be getting a smaller return, not deciding how to spend it.''

Evan Pondel, [phone]

evan.pondel(at)dailynews.com

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