Megan Grant | 

10 Smart Ways to Use Your Tax Refund

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Pretty soon, some of us are going to receive a delightful gift: A tax refund! Yes, while the IRS knows how to take, it also knows how to give, too. You might be considering what you’re going to do with all that cash back you paid in taxes. While it’s exciting to receive some extra moolah, it’s important to use it wisely. I’m not trying to be a buzzkill, but take a moment to think about your financial goals and how your refund can help you achieve them.

For example, maybe you have debt to pay off or need to beef up your emergency fund. Once you’ve taken care of practical needs, go ahead and treat yourself with a portion of the refund. Just remember to strike a balance between immediate wants and long-term financial goals. With the right approach, your tax refund can be a stepping stone to a more secure financial future.

So, before you hit up the Starbucks drive-thru or go on a hefty shopping spree, let’s talk about some savvy ways to use your tax refund, with a few tips from the pros.


10 Genius Ways to Use Your Tax Refund

person smiling at a piece of mail sitting in their living room

To come up with some useful ideas, I did my own research and also talked to a few financial experts. Here are some suggestions for how to put that money to good use!


1. Pay Off High-Interest Debt

“Normally, the best use of a person’s tax refund is to pay down high-interest debt,” says Romeo Razi, CPA and owner of Taxed Right, in an interview with The Krazy Coupon Lady.

Why go after the high-interest debt? Because it’s expensive and costs you more than your other loans and credit cards with a lower interest rate. By focusing on this, you’ll reduce the total amount of interest you pay during the lifespan of that loan.


2. Put the Money into a Tax-Advantaged Retirement Account

Now, what if you don’t have any high-interest debt? “If you’re one of the lucky ones and only have low-interest debt, it would be foolish to pay that off early,” says Razi. “So instead, those people should put their refund into a tax-advantaged retirement account, like a Traditional IRA. Make sure to invest it in a low-risk asset like an index fund or the S&P 500. That way, they save the money, it grows, and they can get a tax benefit for it, too.”

This is a win-win-win.

Amy Ragland, a content writer for banks, wealth management firms, and independent financial advisors, agrees, telling KCL, “Individuals can contribute up to $6,500 in a Traditional or Roth IRA in 2023 ($7,500 if you’re age 50 or older). You can also make extra deferrals to your workplace retirement plan or, if you’re self-employed, to your solo 401(k), SEP, or SIMPLE IRA.”

She suggests check with your financial professional or accountant to find out which option is right for you and if your contribution might be deductible for this year’s tax return.

While there are all sorts of ways to open an IRA, I did mine with Fidelity and the experience has been smooth sailing.

Related: 7 Best and Cheapest Online Tax Software Options in 2023


3. Buy That Thing You’ve *Really* Been Wanting

It’s perfectly okay to spend your tax refund on something that isn’t totally “necessary” but you really, really want. Especially if it’s something high-quality that you’ll keep and use for a long time, then it’s definitely worth the investment.

Is something else worth your tax refund? Consider anything that saves you time, like a home cleaning service. Time is your most valuable asset because once you spend it, you can never get it back.

But, listen, maybe it’s electronics that will make your life easier. I know what it’s like to want a new product, but sometimes the price can be a bit hard to justify. However, I recently got my hands on some of Samsung’s latest offerings, and I have to say, they are definitely worth the investment. Not to mention, there are some great deals going on right now that make it easier to treat yourself and extend the reach of your tax refund.

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Take the Samsung Galaxy Buds 2, for example, They’re currently 27% off at Walmart, which is a steal for wireless earbuds of this quality. The sound quality is amazing, and they’re so comfortable that I can wear them for hours without even noticing. Plus, they’re super easy to connect to your phone or other devices.

Right now, you can get the Samsung Galaxy Tab S6 Lite for 29% off its regular price, which is another slam-dunk deal. This tablet is perfect for both work and play, with a large, vibrant screen and a powerful processor. I’ve been using it to watch movies, take notes, and even do some light gaming, and it’s been great for all of those things.

While tax time can be stressful, it can also be a great time to invest in some high-quality tech that will make your life easier and, quite frankly, more enjoyable.

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4. Put it in Your HSA

A health savings account (HSA) is essentially a savings account where you can stash pre-tax money and use it to pay for certain medical expenses. The contributions are usually tax-deductible, which means that you lower your taxable income! Note that you can use this money for your deductible, copay, and coinsurance, but you usually can’t use it to pay your premiums. Check what your specific plan does and doesn’t allow.



5. Open a High-Yield Savings Account

two people sitting on a couch one is talking and the other is holding a pink piggy bank

This is a great option, especially if you’re not in a place where you’re looking to invest. While this isn’t going to make you rich, it is a safe way to let your money grow slowly over time. Hey, free money is free money!

If you’re not familiar with high-yield savings accounts, think of them this way: Imagine a magical piggy bank that not only keeps your money safe but also makes it grow. That’s essentially what a High Yield Savings Account is. It’s a type of savings account that typically offers a higher interest rate than a regular savings account, meaning you can earn more money on the money you save.

It’s a great option for people who want to keep their money accessible and easily transferable, but still want to earn a little extra dough. Plus, many High Yield Savings Accounts have no fees or minimum balance requirements, so you can save without worrying about pesky charges eating away at your hard-earned cash.


6. Make Extra Mortgage Payments

I know that it doesn’t sound very sexy or exciting, but it can save you a boatload of money down the line. You build equity faster, save on interest, and get rid of that hefty mortgage sooner. A simple way to do this is to take your monthly mortgage payment and divide it by 12. Then, add that to your monthly payment.

For example, if your mortgage payment is $1,000 a month, we can divide that by 12 to get $83.33.

Add $83.33 to your monthly payment to get $1,083.33. This means that by the end of the year, you will have made one extra payment!

Exactly how much you save will depend on your balance, payment, interest rate, and the other terms of the loan.


7. Strike a Balance Between Savings, Debt, and Splurging

No one is saying that you have to spend your entire tax refund on one thing. Theresa Nell, a former financial advisor and financial coach, first suggests making a plan for your refund before it reaches your bank account. This way you can make the most of it when it arrives.

“One idea is to allocate your refund between wants and needs,” Nell tells KCL. “For example, put 50% of your refund towards savings, 25% towards debt repayment, and 25% towards whatever you want. That way, you’ll make progress on your financial goals without feeling like you’re depriving yourself.”


8. Put Your Tax Refund into an Emergency Account

The number of people living paycheck to paycheck is on the rise. Right now, it’s somewhere in the ballpark of 63% of Americans. Having a financial safety net is crucial, and your tax refund gives you the perfect opportunity to build that.

Nashira Lynton, AFC®, MBA, says, “Your tax refund can go toward a cash reserve account. You can set aside an amount equivalent to one month’s expenses, allowing you to break free from the cycle of living paycheck to paycheck.”

For context, a cash reserve account is for short-term or emergency funds.


9. Donate it to a Charity that’s Close to Your Heart

a person holding a charity jar and money smiling looking to the side

This is another win-win-win: You get to spend money in a way that feels good for you, and you help out an organization in need. Plus, it counts as a tax deduction, which means you’ll save money the next time the tax man comes around.



10. Invest in Yourself

Have you been looking to learn a new skill to further advance in your career? Or maybe you feel like you haven’t been taking great care of yourself lately and want a health coach. Whatever the scenario, investing in yourself is always a safe bet.

Similarly, you could also use your tax refund to start that side hustle you’ve been thinking about — like dropshipping or freelancing!

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