Tax Refund This Year? Use It Right

Carmen Wong Ulrich

Not everyone dreads tax day in April. If you’re one of the 60 million plus Americans set to get a refund anywhere close to the average of nearly $3,000, it can feel like a much-needed mini-jackpot. But, instead of an opportunity to splurge, consider putting that refund to work so this year's 'pot' lasts you not just through April, but year after year.

First, put an end to the IRS acting as your person banker. Why pay more than you owe? Instead, have what’s yours with every paycheck rather than once a year by fixing your withholding on your W-4. There’s a withholding calculator at if you’re unsure as to what number is right for you. As you get more money in your paycheck once you make the change, make sure to funnel that money into a no-fee, interest-bearing savings account that you can find online.

[Check here to check savings products and rates in your area.]

However, right now you’ve got a check (or direct deposit) from the IRS burning a hole in your bank account. The first question you need to ask yourself to use it wisely is: Where does this money work hardest for me? Do you already have a well-funded emergency fund? Half of Americans live paycheck to paycheck. This is an opportunity to stop that cycle by using your refund to start building or keep building your emergency fund. It can also serve as a pop-up expense fund so you don’t have to go into debt should unexpected expenses occur, such as your car needing expensive repairs.

And do you owe on any high-interest debt such as credit cards? Another opportunity to save what’s on average now nearly 15 percent in interest is to use your refund to pay down that debt—and keep it down! 

[Related: Most Common Tax Return Mistakes

If you’re in good shape with your emergency fund and high-interest debt, think long-term savings and growth. Even if you have a 401k, and especially if not, open and fund a Roth IRA or traditional IRA to invest more for your retirement. This helps diversify your assets (especially if you have a 401k) and offers even more tax advantages, especially when it’s time to withdraw.

And consider one more fantastic investment: YOU. Take a portion of your refund, and use it to pay for a class that can help forward your career or even better, help you start a new career. Or, consider investing in building a website to promote what you do. Site-building services abound now, and they’re easier to use than ever. Costs can be well in reach of your refund.

[Related: Best Online Degrees for Career Change]

One more great place for your tax refund, if you have kids or grandkids looking to go to college: a 529. These college savings accounts let you grow and use funds tax-free for qualified expenses and your contribution may even be a deduction for 2012. Shop around for free at

Got a tax tip to share or a question? Tweet @carmenwongulric, #OnFile.