Advice | Six smart ways to spend your tax refund

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No matter how often experts advise against planning for a big tax refund, many people like the lump sum anyway.

If this is you — and there’s no persuading you to choose bigger paychecks throughout the year — at least make sure you are taking full advantage of this annual infusion. As of April 7, the IRS had issued more than 69 million refunds totaling more than $198 billion. The average refund was $2,878. There’s a lot you can do with that much money.

Before I get to your options, may I remind you again that this forced savings strategy isn’t sensible, especially now that you can park your money throughout the year in a high-yield savings account. If you’re revolving credit card debt, you’re losing money by waiting for your refund windfall.

When you repeatedly get a refund on purpose, you are giving Uncle Sam an interest-free loan. Evaluate your withholdings every year. If you used a tax professional, ask the person to look at your withholdings. You can also use the “Tax Withholding Estimator” at, which can help you adjust what’s taken out of your pay so that you can get more of your money to save or pay down debt. Use the result to submit a new W-4 Employee’s Withholding Certificate to your employer if needed.

“Our tax withholding estimator offers workers a great way to target the refund range they’re comfortable with,” said IRS spokesman Eric Smith.

It’s not always possible to avoid getting a large refund if you are eligible for certain tax breaks, such as the refundable earned income tax credit, which means that even if you don’t owe any tax, you can still receive a refund.

If you’ve received your refund already or just filed and waiting for it, keep that promise to yourself to use it wisely. Failing to do so reminds me of something my youngest child said to me when she was 4.

I had been promising to do something for her but kept putting it off. Each time she asked about the commitment, I would say, “I’ll do it tomorrow.”

Finally, she had enough of my procrastination and one morning blurted, “Mommy, today is tomorrow.”

If you haven’t in the past, make this the year you do something smart with your refund. Here are ideas on how to use it.

Start or build up an emergency fund

Nearly half of U.S. adults either have no emergency savings or have less money saved than they did last year, according to a Bankrate report.

To arrive at what should be in your emergency fund, pull your bank statements and add up everything it takes to run your household for a month, and multiply that figure by the number of months you want to have saved. Experts recommend saving up at least three months’ worth of expenses. With an average refund of more than $2,800, many people can get a nice start on that goal.

Create a “life happens” fund

Your emergency fund money is for a dire situation, such as losing your job.

This is another pot of money to cover such unexpected financial emergencies as a major car repair. You’ll withdraw money from this fund to pay for expenses that would diminish your emergency fund, leaving you vulnerable if your income drops.

Credit card debt hit a record high. Here’s one way to pay it down.

Credit card balances jumped to $986 billion in the fourth quarter of 2022, surpassing the pre-pandemic high of $927 billion, according to data on household debt from the Federal Reserve Bank of New York.

Yes, you need some money in a rainy-day fund. But don’t keep high-interest debt around because you’re too scared to spend your savings.

More than one-third of U.S. adults say their credit card debt is larger than their emergency savings, according to the Bankrate survey.

Got student loan debt and still waiting for Supreme Court’s decision on the Biden administration’s forgiveness program?

Save your refund just in case the loan forgiveness doesn’t happen.

On student loan forgiveness, conservative justices skeptical of Biden plan

Buy an inflation-proof I bond

The IRS has made it easy for you to invest by allowing you to directly deposit part or all of your refund straight to a financial institution of your choice.

Individuals can purchase up to $10,000 in electronic I bonds in a calendar year. You can also purchase up to $5,000 in paper I bonds using your federal income tax refund, bringing the possible total to $15,000 for individuals for the calendar year.

Use IRS Form 8888 — Allocation of Refund (Including Savings Bond Purchases) — to purchase bonds with your refund. To purchase an electronic I bond, you must establish an account at

Series I savings bonds are issued by the U.S. Treasury. Investors earn a combination of a fixed interest rate and the rate of inflation.

I bonds will pay 6.89 percent until the end of April. If you buy an I bond, the rate applies for the first six months after the issue date.

The fixed rate, which never changes, is announced by the U.S. Treasury every May 1 and Nov. 1. The inflation rate is also announced every May 1 and Nov. 1. Experts expect the inflation rate to drop below 4 percent.

Invest in a low-cost index mutual fund

It’s smart to use your refund to start or boost an emergency or life happens fund, but it’s time you also let your money work for you by investing in a non-retirement account.

You can find some good funds by going to and searching for “Best Index Funds in April 2023.”

Fund a 529 college savings account

You’ve been promising for years to start saving to send your kid to college. So do it.

Under a 529 plan, earnings are not subject to federal tax if the money is used for such qualified education expenses as tuition, fees, books, and room and board. The Consumer Financial Protection Bureau website has useful posts explaining 529 plans.

For people with disabilities, there’s an opportunity to save in an ABLE account, also called a 529 A account. This is a tax-advantaged way to save for disability-related expenses for a disabled beneficiary. The 2023 annual contribution limit for an ABLE account is $17,000. Earnings in an ABLE account also grow tax-deferred, and withdrawals are tax-free if used for qualified expenses such as housing, assistive technology, employment training and support, as well as health-care expenses not covered by insurance. You can find more details about this savings vehicle at the ABLE National Resource Center.

B.O.M. — The best of Michelle Singletary on personal finance

If you have a personal finance question for Washington Post columnist Michelle Singletary, please call 1-855-ASK-POST (1-855-275-7678).

Recession-proof your life: The tsunami of economic news is leading consumers, investors and would-be homeowners alike to ask whether a recession is inevitable. Regardless of the answer, there are practical steps you can take to help shield yourself from a worst-case scenario.

Credit card debt: Carrying credit card debt is never good and you should ditch the habit. Here are seven ways to lower your credit card debt in light of the Fed continuing to raise interest rates.

Money moves for life: For a more sweeping overview of Michelle’s timeless money advice, see Michelle Singletary’s Money Milestones. The interactive package offers guidance for every life stage, whether you’re just starting out in your career to living an abundant life in retirement.

Test Yourself: Do you know where you stand financially? Take our quiz and read advice from Michelle.

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