4 Great Things to Do with Your Tax Refund

Good financial planning - smart decisions with a tax refund

What will you do with your tax refund

It’s that time of year again.  Tax Time!

It’s the time when we cross our fingers and toes as we plead to the tax gods (aka our accountants) that they pull the right strings to bless us with a refund.

For approximately 109 million people out there (and the small fraction reading this), your prayers will be answered with an average refund of approximately $2,700.

Now that you have your refund in hand, what are you going to do with your newfound riches? Here is a list of several good ideas, some of which are more responsible than others.

1 – Contribute to a ROTH IRA

I’ve said it before, and I’ll say it again – ROTH IRA’s are great.  If you are eligible for a ROTH IRA, there are far worse things that you can do with your money.

A ROTH IRA can act as an emergency fund, a retirement fund, and a college fund while simultaneously deferring tax and potentially increasing wealth.1

Your accountant can easily inform you if 1) you are eligible for a ROTH contribution  and 2) how much you can contribute.

2 – Pay Down Debt

Clients love tax refunds.

Honestly, I rarely see a client as excited as when they receive the celebrated news that they are entitled to a refund from the greedy government (to be fair, the government isn’t actually giving you their money.  In reality, they are refunding your own money back to you.  You have essentially been giving an interest-free loan to your government the whole time).

Regardless, clients love getting that refund, whether they know it’s their own money or not.

Now that you know your tax refund is just your own money, don’t you want to be responsible with it?  I hope so! I suggest that you consider the responsible move and pay down your debts. Your financial planner will be thrilled with you!

3 – Splurge

That’s right.  Here I am, after telling you in Option 2 to be responsible and pay down your debt, now I’m suggesting that you spend your money.

Splurging, as I have said before, is a normal consideration in most financial plans.  At some point, saving and saving and saving can be exhausting.

If you have done a good job of responsibly saving all year round, taking some or all of your refund and treating yourself to something special can actually be a responsible thing to do.

4 – Put It in the bank

Saving your money is a great idea.  Even though you won’t be earning money as you might by investing in the stock market, you won’t be losing money either.

When you put money in the bank, you are strategically choosing to forgo market volatility for one important thing – security!

Basically, if you have no debt, don’t want to contribute to retirement, and don’t want to blow your return on a new toy you may not want in 3 months anyway, put that money in the bank.  You’ll be happy you did when that big, unexpected expense appears.

I’m curious, and I’m sure other readers are too.  Did you get a refund this year?  If so, what are you going to do with it?

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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