Put Your Tax Refund to Good Use

Many people treat tax refunds like found money and simply spend it – which is totally okay but there are options for how to make your money work for you and thank your future self!

If you are getting a tax refund this year, think about where the money could go to help you and your family. That’s your hard-earned money and you just loaned it to the government on an interest-free basis. If the refund is large, you should first determine the cause…was it a one-time transaction, that you happened to overpay on or is your withholding too high and an updated Form W-4 with youremployer should be filed? Once these questions are answered, then it’s time to figure out how to use the reduction in withheld taxes to help you achieve your financial goals.

Consider the following options for your tax refund:

• Pay down your credit card or other debt. Many credit cards charge high interest rates and any interest paid is not tax deductible. If you aren’t paying your credit card balances off in full every month, consider using your tax refund to pay down some of that debt. Also consider paying down some student loans to lessen the interest burden. And depending on the tax situation, you may be able to deduct some of the student loan interest paid on your tax return, while also paying down your loan balance – which is double the savings!

• Fund an individual retirement account (IRA). In 2025, you can contribute up to $7,000 (unchanged from 2024) to a traditional or Roth IRA – provided you meet the eligibility criteria. If you are age 50 or older, you can contribute an additional $1,000 (also unchanged from 2024) for a total of $8,000. You don’t have to contribute the maximum amount. Even if your refund is only $500 or so, consider putting it in an IRA.

• Set money aside for your children’s college education. Been putting off starting a college fund for your children? Consider contributing your tax refund, up to a maximum of $2,000 to a Coverdell Education Savings Account. Or consider a Section 529 plan. in 2025, you can contribute up to $95,000 – $190,000 if you split the gift with your spouse – in one year and count it as your annual tax-free gift for five years (up from $90,000 and $180,000 respectively in 2024).  The funds can later be withdrawn on a tax-free basis to pay qualified education expenses.

Just remember that tax refund is your money, so find a way to use it to help achieve your goals!

©  2025