The Biggest and Best List Ever of Ways to Use Your Tax Refund

Remember how last year you read that article about changing your tax deductions on your W-4 so you wouldn’t get such a big tax refund, then you didn’t make the change? Let us help you save face with your accountant and use your refund in the best way possible.

To do so, we’ve compiled the biggest and best list ever of ways to use your tax refund. Choose one or a few smart ways to use that zero-interest loan you just gave Uncle Sam. These tips will either reduce your current expenses, save you money in the future or help grow your net worth.

1. Pay off debt

As David Auten of Debt Free Guys always says, “debt anchors your future to your past.” With some debts costing as much as 20% in interest payment, a tax refund is a great way to let go of the past.

Whether it’s a personal loan, auto loan, student loan or the more expensive credit card debt, paying off debt will save you your tax refund balance multiplied by the Annual Percentage Rate of your debt.

2. Fund recurring, nuisance-expenses

Year after year, we pay for car insurance and registration and spend holiday money without the holiday savings. Or, we must pay for a chimney sweep or pest control.

There are numerous, one-off expenses we forget to include in our budget but that never fail to arise. Set aside your tax refund for these recurring, nuisance-expenses so you don’t have to use your credit cards when these expenses arise.

3. Fund a travel account

“Not all those who wander are lost,” said J. R. R. Tolkien. But many who wander are broke. That’s because travel’s expensive.

If you’re one who travels whether you have the money or not, put your tax refund into a travel account and plan a tax refund’s worth of travel. You may need to add money to this account, but at least you’ll make a large leap toward your next trek.

4. Fund your dream-home savings plan

Speaking of your home, even if you’re a homeowner, there’s a good chance you’re not living in the home of your dreams. Use your tax refund to create and fund your dream home account. With recurring contributions and the right investments, you’ll have a 20% down payment in no time. If you buy right, you’ll get more for less over your lifetime.

5. Fund emergency savings

Tires go flat. Windows break. Late night trips to the ER are needed. In 2017, it was reported that up to 40% of Americans couldn’t cover a $400 emergency without borrowing money or using their credit cards.

If this is you or even if you don’t have the advised three to six months’ worth of living expenses in an emergency savings account, a smart way to use your tax refund is to fund your emergency savings account.

6. Invest in a 529 Plan

Just by reading this, you’re be doing better than 70% of Americans who recently told U-Nest they’d never heard of a 529 Plan. Likewise, most parents claimed (ouch!) to be using a basic checking or savings account to save for their children’s college education, while only 18% said they were using a tax-free 529 college savings plan.

A 529 Plan is a state-sponsored education savings account that lets parents, relatives, and friends invest between $235,000 – $529,000 per beneficiary – your child – contingent on their state of residence. Contributions are made with post-tax dollars, then grow tax and penalty free if withdrawals are made for qualified education expenses.

7. Invest in your hopes and dreams

Too often, tax refunds are spent unconsciously. We consider it found money and as quickly as we “find” it, it goes “missing.” Rather, figure out what your truest, deepest hopes and dreams are, and use your tax refund to fund one.

The satisfaction that comes with purpose-driven spending goes a long way toward increasing life satisfaction.

8. Invest in a taxable account

If you’re one of the lucky ones who’ve maxed out their retirement contributions or you don’t want to lock your money away in a retirement account, invest your tax refund in a taxable account. With a buy-and-hold strategy, your taxable consequences over time will be minimal, and you’ll have additional money available to withdraw without penalty before you turn 59 ½ should you need it.

9. Contribute to an HSA account

Health Savings Accounts or HSAs are tax-exempt, savings account to cover medical expenses. They’re usually offered through an employer or a high-deductible healthcare plan in which you can invest money to pay for qualified medical expenses. An HSA account is like an emergency savings account but specifically for qualified medical needs, from prescription drugs to doctor’s visits to surgery.

Even if you’re a healthy person, a funded HSA account is extremely convenient when you need to cover the most basic medical needs. If you’re prone to sickness or injury, HSA savings can cover your expenses until you receive your insurance money or cover expenses your insurance won’t.

Because we all eventually end up in the doctor’s office, investing your tax refund in an HSA account can help pay for future needs. Plus, once you’re over 59 ½, your HSA acts as a Traditional IRA that lets you withdraw money from it for any reason and you’ll only pay normal income tax on the distribution.

10. Pay off student loan debt

Student loan balances are a major source of financial stress for many. There are many things you can do to reduce this stress, including chipping away at your student loan every chance you get.

When you get a bonus at work or a cash gift from a loved one, put it toward your student loans. When you get a tax refund, put it toward your student loans. In time, these little payments will produce big results.

11. Pay off a HELOC

The drawdown period on a Home Equity Line of Credit can be fun. The repayment period, on the other hand, can be less so. That doesn’t mean it has to be difficult.

Use your tax refund to pay off a HELOC and reduce the stress of waiting until the end of your repayment period to pay it off.

12. Pay off back alimony

Regardless of why you may owe back alimony, use your tax refund as an opportunity to catch up on your payments. This will relieve stress and put you in good standing with the courts and better standing with your ex and kids.

13. Buy alternative investments

If stocks, bonds, and mutual funds sound like your father’s investments, go as alternative as a 90’s grunge rocker; invest in alternative or non-traditional assets.

Potentially exciting investments include antique cars, art, wine (wine you don’t drink) and real estate. With crowdfunding investing through companies such as Realty Shares for real-estate investing and AngelList for venture capital investing alternative investments aren’t solely for the rich anymore. With the minimum purchase requirements of $1,000 that many of these companies require, alternative investing is within reach for most people.

If you’re looking for a little more excitement with your tax refund and after you research your alternative investment of choice – preferably in tandem with talking with a financial planner – consider an investment that could be a topic of conversation at the next cocktail party.

14. Put it toward your mortgage

Your home is one of the biggest investments you’ll ever own. Your mortgage is also likely one of the biggest debts you’ll have, and even low-interest rates are expensive over 30 years. Shave some time off those years by putting your tax refund toward your mortgage. Especially if you think a recession is coming, this tip is a good return on investment (ROI) on the interest-free loan you just gave Uncle Sam.

15. Payback family members and repair relationships

Often the first loans we forget to repay are loans from friends and family. This kind of borrowing strains and ends relationships so much so that we often regret taking out these loans.

Use your tax refund to repay these loans and rebuild those relationships. It’ll be the best ROI you could get with your tax refund.

16. Donate to a charity

If your tax refund is a bit of a surprise or if you don’t truly need your refund, pay it forward and give to others. Use your tax refund to donate to your favorite charity or cause. Your money will help others and help you feel good.

17. Take a class, learn a skill

Don’t take out more student loans. Rather, use the cash from your tax refund to pay for courses at a community college or online university to increase your skillsets. Learning different skills or complementing what you already know could increase your income.

Not only can you include taking additional courses on your annual review to justify a salary increase or promotion, but your improved skills also will help. Research what education benefits your employer offers and stretch these tax refund dollars further.

18. Put money in a retirement account

Between company-sponsored retirement plans and Traditional and Roth IRAs, few Americans completely max out their retirement contributions. A tax refund is a prudent way to make this year the year you max out yours.

By investing $1,000 for 10 years and earning 8% a year, you’d more than double your original investment; your $1,000 would be worth over $2,000. If you invested another $1,000 each of the next 9 years, you’d have over $17,000 saved. That would get you 20% of the way to the average balance of Americans between ages 55 and 64.

19. Catch up on your car maintenance

Cars are costly and not properly maintaining them is more costly. If you’re like many Americans who are behind on their 30,000, 50,000 and 80,000-mile check-ups, use your tax refund to catch up on your car maintenance, and remove the stress of driving a car with your “check engine” light on.

20. Update your work wardrobe

Not to be confused with going on a shopping spree, updating your work wardrobe can make you look more professional at work. Whether fair or not, our appearance, especially in the corporate world, goes a long way to influencing what we earn.

With your increased income, you can increase your retirement contributions and, thus, increase your financial security.

21. Break free of payment plans

We pay for everything today with “convenient, monthly payments,” including phones, furniture, tools, sports equipment and more.

Use your tax refund to stop making monthly payments and own your stuff outright. This will reduce your interest payments and save you money in the long run.

22. Start your own business

With the gig-economy and today’s technology, the barrier of entry to start a small business has never been easier. Once established, you’ll increase and diversify your income streams. If used properly, you’ll also improve your financial security.

23. Invest in your business

It’s one thing to start a small business. It’s another to invest in your small business, and very often small business owners stress about the latter. We try to do everything ourselves in order to save money. As your small business grows, though, it becomes too expensive to do everything yourself.

So, if you’ve already started your small business, scale up by using your tax refund to hire a virtual assistant, a social media manager or have a new logo and media kit created. These and other ideas will make your business look and function better and set you up for growth.

24. Complete home maintenance

Traditional advice is to set aside 1% of the value of your home for annual maintenance, but most people don’t do that. Regular maintenance, then, becomes an emergency. To avoid a home emergency, use your tax refund to do what needs to be done.

25. Pay ahead on bills

One way to add a buffer in your budget and to improve your credit score is to pay your bills one month ahead. When your bills are paid ahead by a month, you’ll never miss or be late on a payment. If you run into an emergency and need a reprieve on paying some of your bills, this buffer gives you an added cushion.

26. Stop leasing

Leasing a car has its time and place, but if you’re leasing because you purchased too much car, use your tax refund to help buy out your lease. Unless the terms of your lease say otherwise, this will help you save money in interest payments and make your car cheaper for you over time.

27. Hire help

Paying for help with your daily responsibilities is counterintuitive to saving and investing unless you hire right. Many of us don’t consider the opportunity costs of cooking, cleaning and doing laundry ourselves. But strategically and intentionally hiring people to do these tasks frees us up to work on ourselves, our careers or our businesses, all of which can increase our incomes today or tomorrow.

Hiring a personal chef to cook even three meals a week, subscribing to a meal kit service or getting a house cleaner to clean once a month frees us to work on higher ROI tasks.

Hopefully, you can see there are smarter ways to use your tax refund than unconsciously spending it and eventually forgetting what you spent it on. Pick one or more of these 27 ideas above or use them to inspire your own ideas.