7 Money-Smart Ways to Spend Your Tax Refund
Nearly 60% of taxpayers expect a refund this year, and many will receive a larger amount.
![picture of refund line on a tax form](https://cdn.mos.cms.futurecdn.net/TxLCSTT46tTrUky2Teb7pR-415-80.jpg)
The average federal tax refund so far this year is $3,103 – up 8% from the same period in 2021. But instead of using the money for a summer vacation, many people who are struggling with rising inflation will need to use their refunds to pay for gas and groceries.
If you're fortunate enough to have the essentials covered, you may be tempted to treat yourself to dinner at your favorite restaurant or a nice bottle of wine. Fine. But once you've scratched that itch, consider these ways to put the rest of your tax refund to work for you.
![Shore Up (or Start) Your Emergency Fund](https://cdn.mos.cms.futurecdn.net/ejNHpDyuqdyzhCwdVhBafD-415-80.jpg)
Shore Up (or Start) Your Emergency Fund
Even if you're fully employed now, there's no guarantee that your hours won't be cut, your salary reduced, or your job eliminated down the road. That means it's more important than ever to have money set aside for emergencies. That way, you won't have to run up credit card debts or raid your retirement savings to pay the bills until you get back on your feet.
Aim for six months of living expenses — more if you're the sole provider for your family. Interest rates are still low right now, but you can eke out higher rates by putting your savings in an online bank account. Look for one with no minimum balance requirement or monthly fees.
![Pay Off High-Interest Debt](https://cdn.mos.cms.futurecdn.net/dR4KmH36d9WJmHSvsoVPqZ-415-80.jpg)
Pay Off High-Interest Debt
In an effort to curb inflation, the Federal Reserve is expected to hike short-term interest rates several times this year, and that means credit card rates will rise, too. The average credit card interest rate is already a hefty 16.36% as of April 20, 2022, according to CreditCards.com. Pay off your unpaid balances and you'll get a return on your investment a successful hedge fund manager would envy. If you're able to pay off the entire balance, you'll also eliminate a monthly expense, which will give you some breathing room if you lose your job.
![Save for Retirement](https://cdn.mos.cms.futurecdn.net/UzoKMXcfytLNdV6vjpbNcF-415-80.jpg)
Save for Retirement
If you have a Roth or traditional IRA, consider putting some of your refund money in the account now so you'll have more money when you retire. If you don't already have an IRA, think about getting one. The maximum amount you can contribute to your IRAs in 2022 is $6,000 — $7,000 if you're 50 or older — so you can stash your entire refund there if you don't need it for anything else.
If you're not inclined to build your own portfolio, consider investing in a target-date fund, which will invest in a mix of stocks and bonds, based on how many years you're away from retirement.
![Invest in a 529 College Savings Plan](https://cdn.mos.cms.futurecdn.net/N7N4MyBwCKzFmzZ7yBpJ6K-415-80.jpg)
Invest in a 529 College Savings Plan
Contributions to a 529 college savings plan grow tax-free, and withdrawals aren't taxed if you use them for qualified expenses, such as college tuition and room and board. You can invest all or a portion of your tax refund — 529 plans typically have very low minimums. Plus, your state may give you a tax deduction or credit if you invest in your own state's plan. If your children are young, you have many years for investments in the plan to compound and grow. To research plans, go to savingforcollege.com.
![Protect Yourself from Unexpected Health Care Costs](https://cdn.mos.cms.futurecdn.net/8RfoeoQ7Z2gkmojXfxg6QZ-415-80.jpg)
Protect Yourself from Unexpected Health Care Costs
If you have a high-deductible health insurance plan (a deductible of at least $1,400 for single coverage or $2,800 for family coverage), you can contribute to a health savings account. An HSA gives you a triple tax break — your contributions are tax-deductible (or pre-tax if through your employer), the money grows tax-deferred, and you can use it tax-free to pay out-of-pocket medical expenses in any year (there's no use-it-or-lose-it rule).
The CARES Act increased the types of expenses that are eligible for tax-free withdrawals from your HSA. In addition to health insurance deductibles, co-payments, prescription drugs and medical expenses that aren't covered by your insurance, you can use tax-free withdrawals to pay for most over-the-counter medications and feminine-hygiene products. Although health-insurance premiums are typically not considered qualified medical expenses, there's an exception if you use withdrawals to pay COBRA premiums or for other health-insurance premiums if you're collecting unemployment benefits.
![Protect Yourself from Natural Disasters](https://cdn.mos.cms.futurecdn.net/opjkeXVV9Vqikdm6xrMGw-415-80.jpg)
Protect Yourself from Natural Disasters
Hurricane season is almost here, so if you live in a vulnerable area, consider using your refund money to protect your home. A home generator will keep the lights on and the food cold during a power outage. A 6.5 kw portable home generator costs about $800 to $1,000. You also can use the money to pay someone to trim your trees, which will help protect your home from some of the most common types of storm damage.
![Upgrade Your Home Office](https://cdn.mos.cms.futurecdn.net/fNzgciqygGkHQjdipXxnuc-415-80.jpg)
Upgrade Your Home Office
If the COVID-19 pandemic still has you working from home, you're probably well aware by now of the inadequacies of your home office. Use your refund to buy a standing desk — the Uplift V2 can be customized for a wide range of heights and retails for about $550. Is your back acting up? Maybe you need a new chair. The Alera Elusion Mesh Mid-Back Swivel/Tilt Chair, which retails for about $160, features a contoured seat cushion that's designed to relieve pressure on your legs.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
$145 Million in ‘Senior Freeze’ Checks Mailed
Property Tax What you need to know about New Jersey's property tax relief program for older adults.
By Kate Schubel Published
-
An IRA Contribution Option You Might Not Know
IRAs Retirement savings might not have to take a back seat just because your partner doesn't earn income.
By Kelley R. Taylor Last updated
-
HSA Contribution Limit Rising Again for 2025
Health Savings Contribution limits matter when it comes to maximizing your tax-advantaged health savings account.
By Kelley R. Taylor Last updated
-
The Best Places to Retire in New England
places to live Thinking about a move to New England for retirement? Here are the best places to land for quality of life, affordability and other criteria.
By Stacy Rapacon Published
-
What Does Medicare Not Cover? Seven Things You Should Know
Healthy Living on a Budget Medicare Part A and Part B leave gaps in your health care coverage. But Medicare Advantage has problems, too.
By Donna LeValley Published
-
13 Smart Estate Planning Moves
retirement Follow this estate planning checklist for you (and your heirs) to hold on to more of your hard-earned money.
By Janet Kidd Stewart Published
-
Final EV Tax Credit Rules Don’t Change Much for Consumers
Tax Credits Treasury and IRS have finalized regulations for the up to $7,500 electric vehicle tax credit.
By Kelley R. Taylor Last updated
-
Three 'Hidden Costs' of Health Savings Accounts (HSAs)
Health Savings HSAs offer valuable tax benefits, but can 'hidden costs' erode those advantages?
By Kelley R. Taylor Last updated