Got Your Tax Refund? 9 Smart Things to Do With It
Have a tax refund coming your way? Read on for great ways to maximize that cash.
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As of late February, the average tax refund issued by the IRS this filing season was $3,213. Since the April 15 filing deadline is still about a month away, that average refund amount has the potential to change. But no matter what refund you get on your taxes, it's important to make the most of that money. Here are nine savvy moves you can make with your newfound pile of cash.
1. Cover yourself with emergency savings
Without an emergency fund, you may be forced to resort to taking on debt when unplanned expenses come up. Rather than risk that scenario, add your refund to your savings account. At a minimum, aim for enough cash in the bank to cover three months of essential bills. And if your refund alone doesn't get you there, which it may not if you're starting with no savings, aim to continue adding to your savings after tax season is over.
2. Pay off costly debt
Maybe you owe money on your credit cards because you had to charge some unexpected medical bills last year. Or maybe you're still carrying an expensive loan you signed when your credit score wasn't great. If you have debt that's costing you a lot of money in interest, then it definitely pays to use your tax refund to try to knock it out.
3. Invest for the future
Investing money is a great way to turn a small sum of cash into a much larger one. Over the past 50 years, the stock market's average return has been 10%. A $3,212 tax refund invested in a regular brokerage account or a retirement plan today could be worth over $145,000 in 40 years if your portfolio delivers a 10% yearly return as well.
4. Further your education
Feeling stuck in a rut career-wise? A job that bores you to tears isn't good for your morale. So if taking classes or going to grad school is what it takes to help you land a much more interesting (and perhaps better-paying) role, then consider using your tax refund to further your education. It could be one of the best investments you'll ever make.
5. Upgrade failing electronics
Have a cellphone that can barely hold a charge, or a laptop that freezes on you constantly and whose keyboard is so banged up the keys barely work? You may want to use your tax refund to upgrade these and similar items that are essential to your everyday quality of life. And if you're self-employed, some of those upgrades may be eligible for a tax write-off when you file your 2024 taxes. (Consult a tax professional to find out for sure.)
6. Start a 529 plan
If the idea of paying for your kids' college makes you want to throw up just a little bit, then now's the time to open a 529 plan using your refund as seed money. The nice thing about 529s is that investment gains in these accounts are tax-free, as are withdrawals, as long as that money is used to cover qualifying educational expenses. Plus, 529 plans make it easy to switch beneficiaries, so if you have multiple children, you get flexibility in the happy event that you end up with excess college savings on your hands.
7. Make home or car repairs
If your car has seen better days, or if there's a specific ticking time bomb of an issue happening at home, like a water heater that's about to go kaput, you may want to use your tax refund to address that matter. Letting problems with a car or home linger could cause you a lot of stress. And then, you might eventually land in a situation where you have to fix an issue on the spot when you're less prepared.
8. Make home improvements
Improving your home could make your daily life more comfortable. Your tax refund may not be robust enough to cover a major home improvement, like gutting your kitchen or finishing your basement. But it could be just the thing that allows you to replace worn bathroom tiles or upgrade to more energy efficient appliances.
9. Buy life insurance
If you've been putting off life insurance because of the cost, you should know that a term life policy may be more affordable than you'd think. But also, you shouldn't keep putting that purchase off, because if something happens to you, your loved ones could be left in the lurch. So if you're sitting on cash from a refund, use it to cover the initial cost of your premiums. You'll get peace of mind -- and so will the people you care about most.
If you find out from your accountant (or tax software program) that you're getting a tax refund, know that it could improve your life and finances in a number of ways. So no matter what that sum amounts to, think carefully about your options for putting it to good use.
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