Skip to main content

Managing Your Money

What to Do With Your Tax Refund: 11 Simple Ideas Not sure what to do with your tax refund? Instead of spending your refund without a plan, prioritize how you use your tax refund in order to accomplish your goals. Bank of America what to do with tax refund, what to do with your tax refund, how to spend tax refund

What to do with your tax refund: 11 simple ideas

If you're getting a tax refund this year, taking a moment to consider your options can really maximize your hard-earned money. In 2014, the average tax refund in the U.S. was $3,034, so whether you're paying off debt, thinking about travel or looking at remodeling your home, we can offer a few ideas for getting the most out of your tax refund. Note: Deposits and loan accounts are provided by Bank of America, investment accounts are provided by Merrill Edge.

Pay down debt

1. Get ahead of loan payments:

  • Car loan
  • Credit card balance
  • School loan

If you have debt, this is one move you can make that can really improve your financial health. By paying down or eliminating certain types of debt, you'll pay less overall by reducing or eliminating the interest that would otherwise accrue. If you're like most people, you'll also experience a sense of relief once your debt is paid off.

Plan for the future

2. Start an emergency fund for:

  • Car repairs
  • Health care (out-of-pocket and unexpected)
  • Housing expenses

Life may not be predictable, but we can always count on financial obligations. To ensure that your unplanned expenses are covered, experts recommend setting aside 6-8 months of take-home income as a baseline for your emergency fund. If you haven't started your emergency fund yet or are still short of your baseline goal, consider using your tax refund to get started or close the gap. When the unexpected happens, your emergency fund will help preserve your standard of living so you can focus on what matters most—you and your family.

3. Contribute to your retirement savings:

After a lifetime of work, you deserve financial comfort and stability. Setting aside some or all of your tax refund in a savings account, CD or IRA can help you build a comfortable nest egg so you can enjoy your well-deserved retirement years.

4. Grow college savings:

  • Deposit accounts such as a custodial (UTMA) account or CD
  • Investment accounts such as a 529 savings plan or a mutual fund

Education is a great investment for the success of your children. By contributing to a college savings account now, you'll be prepared to pay all or part of your child’s tuition, housing, books, transportation and other living costs when the time comes. Saving earlier, with certain savings vehicles, may offer greater results from interest compounded over time.

5. Build an investment portfolio:

  • Stocks
  • Bonds
  • Mutual funds

If you're looking to do more with your tax refund, consider investing in stocks or mutual funds. Depending on your long-term goals, you may want to start or contribute to an investment portfolio. Keep in mind that unlike bank deposits, investments are not insured by the FDIC; are not a deposit or other obligation of, or guaranteed by, a bank; and are subject to investment risks, including possible loss of the principal amount invested.

6. Remodel your home:

  • Energy efficiency
  • Kitchen or bathroom upgrade
  • Roof repair
  • Window repair

You may be able to improve your standard of living and increase the value of your home by fixing a leaky roof or remodeling an outdated kitchen. Installing energy efficient features, such as double-paned windows and upgraded insulation, may also help you save on your monthly utility bills.

7. Save for something big:

  • New home
  • New vehicle

As you earn more and your family grows, it's natural to think about buying a house or new car. It isn't easy to find the perfect home or just the right vehicle, so when you do, it's great to be prepared with savings that are there when you need them. By choosing a savings account or CD, your tax refund can accrue interest over time so you have more to spend when you're ready.

Pay yourself

8. Donate to charity:

  • Reduce tax obligations for next year
  • Help your community or a deserving cause
  • Find fulfillment in philanthropy

When life is good, it's rewarding to pay it forward by donating a portion of your tax refund to a charity or cause. Contributions to many nonprofits are tax-deductible and can be written off your taxes for the following year. If you don't have time to volunteer but want to support a favorite cause or several, consider all or part of your tax refund as a ready-made contribution.

9. Invest in your career:

  • Classes and training
  • Degree, diploma or certificate
  • Hire a career counselor or life coach

Cultivate your career and personal growth by developing new skills or experiencing something completely different. Using a tax refund to invest in your career is a great way to reward yourself and take action toward a better job, larger salary or an entirely new career opportunity.

10. Improve your health:

  • Gym membership
  • Dance or fitness class
  • Elective surgery

If your health plan doesn't cover a therapy or surgery that could improve your wellbeing or prevent an ongoing condition from worsening, you may want to consider using your tax refund to cover all or part of the procedure. If cost has been your obstacle to taking a fitness class or working out at a gym, think about using your tax refund to cover the cost of classes or membership.

11. Take a vacation

If you’ve taken care of all your financial obligations and you're actively saving for the future, this may be a good time to unwind, recharge and get away from it all. Whether you're thinking of a long weekend locally or an extended visit to a dream destination, the remaining portion of your tax refund can cover all or part of a long-awaited vacation.

Deciding what to do with your tax refund can be exciting, but also overwhelming. You'll get the best results by always prioritizing your important financial obligations first. Once you pay down debt and prepare yourself and your family for expected and unexpected future events, you'll be in good financial health to use what's left of your tax refund to enjoy your well-deserved vacation.