5 smart ways to spend your tax refund

When you get a big check from the IRS, you might be tempted to treat yourself to a shopping spree, but there are smarter ways to put the money to use.

In 2023, 120.9 million people received tax returns from the IRS¹ averaging $2,753.² If you’re fortunate enough to get a refund this year, invest that money in your financial future to get the biggest benefit.

Here are five smart ways to put your tax refund to work.

1. Save for retirement

If you‘re enrolled in a retirement account through your employer, consider increasing your contributions or look into an IRA through a bank or financial company. Most retirement experts recommend contributing 10% to 15% of your income toward your 401(k).³ The highest amount you can contribute in 2024 is $23,000 with a catch-up contribution of $7,500.⁴ Using your return to reach these levels can payoff in the long-term. Time has a powerful multiplier effect when it comes to retirement savings, so starting early and adding gradual increments over time may make a big difference in the years to come.

2. Fill up your emergency fund

An emergency fund can be helpful for covering unexpected expenses without going into debt, but, 81% of adults say they didn’t contribute to their emergency savings in 2023.⁵ Creating a buffer using your tax refund can help pay for a surprise car repair or medical bill without falling off your financial course.

3. Pay down your debt

Since American adults carry an average of $6,501 in credit card debt, many people are losing money paying interest rather than earning it.⁶ Use your refund to make progress paying off your credit card or student loan so you can get closer to being debt-free.

4. Save for college

If you’re a parent, consider putting the money into a 529 fund to start saving for your child’s education. If you save enough now, you may be able to avoid going into debt to pay for college later.

5. Consult a financial professional

Many financial institutions offer a complimentary consultation with professionals who know a range of financial products and how they can help protect you. A financial professional can help you understand your options so you can spend your refund wisely, knowing how it will impact your financial future.

Getting a refund on your taxes isn’t the same as finding money — it’s money you overpaid, essentially giving an interest-free loan to the government. Consider asking your payroll department at work to reduce the tax withholding on your paycheck so you can keep more of that money in your wallet. If you’re self-employed, see if you can reduce your quarterly tax payments. And plan to spend this year’s refund on your future financial confidence, instead of something you don’t need.