5 Good Uses For Your Tax Refund

Expecting a tax refund? We’re sharing 5 ideas on how you can make your money work for you.

If you’re getting a tax refund, remember it’s not free money – it’s money you’ve worked hard to earn and that’s why it’s essential to make the most of it. While there’s no single ‘correct’ way to allot your refund, there are several smart options to consider.

5 Good Uses For Your Tax Return  

#1 Pay Off Debt  

Instead of using your refund as a down payment to acquire more debt, think about applying it toward any existing debt. You could eliminate a small balance and free yourself from a monthly payment, or tackle debt with the highest interest rate to reduce costs in the long run.

#2 Start/Grow Your Savings

Unexpected expenses can arise – whether it’s car repairs, medical bills, or job changes – so it’s wise to prepare by having at least three to six months’ worth of living expenses saved. If you already have this cushion, consider increasing it to cover a full year’s worth of expenses. Having savings to fall back on can provide peace of mind.

You can also open a savings account or share certificate and deposit your tax refund to kick-start saving for a financial goal, like going on vacation or saving for a down payment on a house. The more you save, the less you need to borrow and pay interest on.

#3 Contribute To An IRA  

Securing a comfortable retirement could largely hinge on the actions you’re taking now. Depending on your age, you may need to finance some or most of your retirement. If possible, consider increasing your contributions – you might even enjoy some tax advantages. Be sure to consult a tax professional to explore your options and understand contribution limits.

Don’t have an Individual Retirement Account (IRA)? Discover how an IRA can help you plan for the future today.

#4 Contribute To An HSA  

If you’re enrolled in a high-deductible health plan, opening a Health Savings Account (HSA) is a smart choice. This account lets you save specifically for health-related expenses. Unlike other options, any unused funds roll over and remain available for future healthcare costs, giving you flexibility to use the money whenever needed. Key benefits include tax-deductible contributions if made outside of payroll, tax-free interest, and tax-free withdrawals so long as they’re used for qualified medical expenses.

#5 Education Savings Account  

College tuition costs continue to rise, and this trend is unlikely to slow down. If you’re planning to help a minor with their education expenses, it’s wise to start saving early. There are multiple accounts specifically designed for saving for college – a noteworthy option is the Coverdell Education Savings Account. This account allows tax-free withdrawals, including earnings, when used for qualified expenses like tuition, books, and other higher education costs.

Summary

While it’s easy to receive your tax refund and start spending money, it would be wise to have a plan in place to keep your money from disappearing as quickly as it appeared.