Last year, more than 112 million Americans got a tax refund — one of the few perks that comes with having to file your taxes. And with the average refund topping out at nearly $2,900, there a chance you may have some cash sitting in your bank account.

Ultimately, what you decide to do with your refund will depend on your goals and priorities. But if you need some ideas, read on for some smart things to do with your tax refund.


Yes, you read that right. With everything that’s happened this past year, setting aside some of your refund for a splurge is well-deserved. (Plus, you made it through another tax season!) So whether that means a fancy takeout dinner for your next date night, or a socially-distanced family outing, your refund can help you spend on something fun without having to dip into your everyday budget. In fact, whenever you receive any sort of windfall, consider setting a percentage aside for fun spending so that you get to enjoy some of that money now, in addition to using it for other goals.


A tax refund is a great opportunity to start saving for that big thing you’ve been dreaming about. For instance, maybe you've been itching to take a trip abroad once it’s safe to travel again. Maybe you’re ready for a change in scenery and have been thinking about upgrading from your starter home to your dream house. Or maybe you just need to boost your emergency fund so you’re not caught off guard by an unexpected expense.

Whatever your goal, the first step is to set aside some money for it. If your goal is short term, meaning you think you may need to access your money within a few months or years, consider putting your goal money into a high-yield savings account, where it’ll be easier to access when you need it. (Consider making it separate from the bank where you hold your primary checking account, so you won’t be as tempted to transfer money from your savings to your checking.)

If you’re saving for something long term, like a down payment on a bigger home you may want to buy in the next 10 years, consider saving for it in an investment account, where your money can potentially grow faster with the help of the markets. A financial advisor can also help you figure out the best way to save and grow your money based on your goals and timeline.


There’s no reason debt should slow down your financial progress, so consider using your refund to kick some high-interest-rate debt to the curb (read: those credit cards that charge you double-digit interest rates). That’s because when you pay down that debt, you’re freeing up future cash in your budget by reducing or eliminating the amount you pay in interest each month.

Let’s say you have a $2,900 balance on a credit card that charges a 20 percent annual percentage rate, and you’ve been paying $200 a month toward it. If you decide to use your refund to pay off the balance all at once, you’ll be saving yourself 17 months of payments and $447 in total interest. Plus, you’ll have $200 each month to use for something else.

Even if you decide to put just $500 of your refund money toward that balance, you’ll be shaving three months off your payoff timeline and nearly $150 off your total interest paid. That’s money that can be freed up to put toward other, more fun goals.


Even if you’re already putting money away in a 401(k) or IRA, it never hurts to give your nest egg a little more padding. That’s because the earlier you start saving, the longer you can take advantage of compound growth.

For instance, if you’ve got $20,000 in an IRA that grows at a hypothetical 6 percent a year, in 20 years you’ll have more than $64,000 in that account, even if you never add to it again. But if you bump that amount up to $22,000, you’ll have more than $70,500 over that same time frame.

Of course, how you decide to use your refund really depends on your situation and what you’re trying to achieve. You might have one particular goal you’re focused on, and that may be where your refund goes. Or you might put the money toward several goals, allowing you to enjoy something right now and save for something you’ll enjoy in the future. An advisor can help you figure out how to balance all the priorities you have in your financial plan.

No investment strategy can guarantee a profit or protect against loss. All investments carry some level of risk including the potential loss of principal invested.

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