What to do with your tax refund: 9 simple ideas

The average tax refund in the U.S. in 2015 was $3,120, according to the IRS. When used wisely, that’s money that could help you reduce your debt, save for your kids’ college tuition or grow your retirement fund.

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Pay down debt

1.     Get ahead of loan payments

If you have debt, this is one move you can make that can really improve your financial health. By paying off certain types of debt, you pay less overall by reducing or eliminating the interest that would otherwise accrue.

Car loan

4.5% average APR

Credit card balance

15.3% average APR

APR sources: Experian, CreditCards.com

Plan for your future

2.     Prepare for the unexpected

Car repairs

Health care (out-of-pocket and unexpected)

Housing expenses

Experts recommend setting aside 3–9 months of take-home income for an emergency fund (https://bettermoneyhabits.bankofamerica.com/en/saving-budgeting/emergency-saving-fund). If you haven’t started one, or are short of your goal, consider using your tax refund to begin saving or close the gap.

3.     Contribute to your retirement savings

IRA

CD

Savings account

Setting aside some or all of your tax refund in a savings account, CD or IRA can help you build a comfortable nest egg (https://bettermoneyhabits.bankofamerica.com/en/retirement/when-to-start-saving-for-retirement) so you can enjoy your well-deserved retirement years.

4.     Grow college savings

Contributing to college savings plans now can help prepare you for the costs of your child’s tuition, housing, books and transportation. Certain savings vehicles may offer greater results from interest compounded over time.

Deposit accounts such as a custodial savings account or CD

Investment accounts such as a 529 college savings plan or a mutual fund

5.     Build an investment portfolio

Stocks

Bonds

Mutual funds

Depending on your long-term goals, you may want to use your tax refund to start or contribute to an investment portfolio.*

6.     Remodel your home

You may be able to increase the value of your home by using your tax refund to pay for upgrades or repairs. Installing double-paned windows or energy-efficient appliances may also help you save on your monthly utility bill.

Pay yourself

7.     Donate to charity

Charitable donations

Community involvement

Tax deductions

It’s rewarding to pay it forward by donating a portion of your tax refund to a philanthropic cause. Contributions to many nonprofits are tax-deductible, too.

8.     Invest in your career

Using a tax refund for professional training or continuing education classes is a great way to pursue a better job, larger salary or new career opportunity.

9.     Take a vacation

If you’ve taken care of all your financial obligations, a vacation can be a great way to treat yourself and unwind. Your tax refund can cover all or part of your expenses, whether they’re for a weekend staycation or a trip you’ve wanted to take for years. 

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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.

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* Unlike bank deposits, investments are not offered by Bank of America and 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.

Note: Deposits and loan accounts are provided by Bank of America, investment accounts are provided by Merrill Edge.

Investments are available through Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S).

MLPF&S is a registered broker-dealer, Member SIPC and a wholly owned subsidiary of Bank of America Corporation.

Banking products are provided by Bank of America, N.A., and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation.

Investment products:

Are Not

FDIC Insured 

Are Not

Bank Guaranteed

May Lose Value

 

Investing in securities involves risks, and there is always the potential of losing money when you invest in securities.

Before you invest in a Section 529 plan, request the plan’s official statement from your advisor and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the plan, which you should carefully consider before investing. You should also consider whether your home state or your designated beneficiary’s home state offers any state tax or other benefits that are available only for investments in such state’s 529 plan. Section 529 plans are not guaranteed by any state or federal agency. Always consult a tax professional.

Neither Bank of America nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.