Editor’s Note: This article was originally published on December 23, 2015.
When it comes to financial resolutions, a tax refund is a quick way to get started on the right path. It’s the largest single check many of us will get over the course of the year. Imagine what a big difference you can make in your debt or savings with it.
Here’s what to do with a tax refund and more ways to save money down the line:
1. Save it in your bank account. You probably know that the IRS offers the option to have your refund direct deposited into a bank account. Here’s the thing: it doesn’t have to be a checking account. Direct deposit that check straight into savings and make it a little bit harder to spend. If that’s not feasible, consider only depositing a portion of the refund into your checking account and sending the rest to savings.
2. Purchase Savings Bonds.The bonds don’t earn a huge amount of interest but it’s a great way to make sure your money is saved and earning a little bit.
3. Fund an IRA. You can set up a Traditional IRA or Roth IRA and take advantage of their tax benefits as you save for retirement. Read about IRA investments and other strategies to maximize your refund.
4. Start a college savings account for your child.
If you feel like your finances are pretty well covered, maybe it’s a good idea to use your refund to start your child off on the right foot. There are also tax benefits associated with plans like a 529 or Coverdell Savings Account. Read more about college savings plans.
Pay down debt
5. Pay down credit card debt. The average household with credit card debt continues to climb. Even if you can’t pay off your credit card debt in full, putting a sizeable refund toward it will help you incur less interest and will help you get a head start on paying it all off.
6. Pay off a student loan or car loan. Or make additional payments if you can’t pay it off entirely. Making a couple extra payments on a car loan or student loan will help you pay down larger portions of interest and pay off the entire balance sooner. If you can put your full refund toward the debt and completely erase it, that’s even better!
7. Make extra payments on your mortgage.While there’s no rush to completely pay off a home, making one or two extra payments can mean that you accrue less interest over time.
8. Make energy efficient upgrades to your home. Are your heating bills skyrocketing? Maybe you need to replace your windows and doors or upgrade your insulation. Investing your refund into home fixes like this that will save you money on utilities bills for years to come can be a smart move. What’s more, certain purchases may also qualify for tax credits.
9. Take care of any medical or dental work you’ve been putting off. Chances are, the longer you wait, the more likely your situation could become emergent – and expensive. Spend that refund on preventative care now. If you have enough qualified medical and dental expenses in the year – more than 7.5% of your AGI – you could claim a medical deduction at tax time.
10. Invest in yourself! Maybe it’s going back to school, taking a continuing education course or spending some of the refund on professional conferences or networking events. By investing in yourself and your future, you are potentially starting down a path to earning more and improving your financial situation.
Do you plan to make a smart financial move with your refund? We know our clients are money savvy, but always looking to improve.
Hope you enjoyed our list of what to do with a tax refund! Happy spending!