If you’re expecting a refund this year, think about using it to strengthen your financial situation. The average refund is around $3,000, and most people receive their money within three weeks of filing. That’s a nice sum to put to good use. Here are 13 smart ways to make the most of your refund.
Pay off credit card debt
Using your refund to pay down credit card debt with an 18% interest rate is like earning 18% on your investments. That’s an excellent use of your money. Prioritize your highest-interest debt first to save the most money over time.
Rebuild your emergency fund
It’s important to have three to six months’ worth of expenses in an emergency fund. If you’ve had to dip into your savings, now is a great time to replenish it. Keep the money in a high-yield savings or money market account for easy access.
Boost your retirement savings
You can contribute up to $6,500 to a Roth IRA in 2024 ($7,500 if you’re 50 or older). Your money will grow tax-free, and you won’t owe taxes when you withdraw it in retirement. If you earn too much for a Roth IRA, consider a traditional IRA or backdoor Roth conversion.
Invest in a taxable account
Use your refund to buy shares in a mutual fund or stock outside your retirement accounts. This is a great way to diversify your investments. Consider low-fee funds or individual stocks with strong long-term potential.
Increase your insurance coverage
An umbrella policy costs about $200 to $400 per year and provides $1 million in coverage. If you own a home, consider adding sewage backup coverage for around $130. You can also use your refund to trim trees or upgrade home safety measures before hurricane season.
Build college savings
A 529 college savings plan allows your money to grow tax-free when used for educational expenses. Under current laws, you can also use up to $10,000 per year for private K-12 tuition. Some states even offer tax deductions for contributions.
Contribute to your child’s roth IRA
If your child has earned income from a job, they can contribute to a Roth IRA. You can match their contribution with your refund to help jump-start their retirement savings. The money can also serve as a backup emergency fund since contributions can be withdrawn anytime tax-free.
Prepay your vacation or save for short-term goals
Instead of relying on credit, set aside some money now for your next trip. You can also use your refund to start saving for holiday gifts or a down payment on a new car.
Improve your home
Your refund won’t be enough for a major remodel, but it can help with smaller projects. Consider painting, adding a backsplash, replacing a sink, or installing a programmable thermostat to cut energy costs.
Fund a health savings account (HSA)
If you have an HSA-eligible health insurance plan, contribute to an HSA to enjoy a triple tax break. Your contributions are tax-deductible, grow tax-free, and can be withdrawn tax-free for medical expenses. You can even use it for Medicare premiums after age 65.
Meet with a financial planner
A professional financial planner can help you create a strategy for retirement, college savings, or investment goals. Some advisers charge by the hour, so you may be able to get a solid plan for $500 to $1,000.
Establish an estate plan
If you don’t have an estate plan, now is a good time to create one. Use your refund to draft a will, set up a healthcare proxy, and establish power of attorney to ensure your wishes are followed.
Give to charity
Consider donating to a charity. If you have at least $5,000, you can open a donor-advised fund, allowing you to claim a tax deduction now while deciding later which charities to support. Even smaller donations can make a big impact.
Use your refund wisely to improve your financial well-being!
