4 tips to help make the most of your tax refund

Meagan Dow, CFA®, CFP®
Senior Strategist, Client Needs Research
Last year, around two out of three tax filers received a tax refund, with the average refund amount at just under $3,000.1 While this isn’t a life-changing amount for most people, it’s substantial when you consider that more than one in three adults report they can’t cover a $400 unexpected expense using cash.2 So, if you’re receiving a refund this year, how can you make the most of it?
Have a little fun, but don't spend all of it
Financial windfalls like tax refunds often feel like free money, which can make it easier to use them on splurges — and there’s something to be said about enjoying the present. So, if you want, spend part of your refund on something special. But try not to use all of it, and certainly don’t overspend (for instance, by using it to put a down payment on a big trip that will ultimately put you in debt). Instead, commit to using at least some of it for saving or debt reduction goals.
Use it to create more financial stability
To that end, there are several ways you can use your refund to create more financial stability. This could include addressing shorter-term needs, like building an emergency fund or paying off debt. Or it could help you make progress on longer-term goals. Some ideas include:
1. Start or build your emergency fund
If you don’t have anything saved up in an emergency fund — which can be used for unexpected expenses or to cover a drop in income (if you’re still working) — this should likely be your top priority. Eventually you’ll want to have three to six months of total expenses saved, but even a few hundred dollars can help create financial stability. Start by targeting $500 to one month of total expenses, then continue making progress until you reach a fully funded amount.
2. Pay off debt
Your tax refund could be a great way to pay off any high-interest debt you have (such as credit card debt). It’s a good idea to prioritize paying down debt with an interest rate higher than what investments are likely to earn, which we generally categorize as an interest rate higher than 8%. If you have multiple lines of credit charging more than that, paying off the highest interest rate debt first typically has the best financial impact, but paying off lower balances may be more motivating to you. Once you’ve tackled your costliest debt, you can work toward paying off any amount that causes you stress (financially or emotionally).
3. Make progress toward your retirement
If you’re still working, at a minimum, you want to ensure you’re contributing enough to your retirement plan and health savings account (HSA) to get any employer match that’s offered (if available). Then you can work toward the rule of thumb of saving 10% to 15% of your gross income toward retirement (inclusive of any employer match), or speak with a financial advisor about your retirement goals to customize the amount of retirement savings to help keep you on track. If funding through an employer plan, you can adjust your payroll deductions (which will reduce your take-home pay) and use your tax refund to make up the difference. If you’re eligible to contribute to an IRA, you can use your tax refund to fund the account.
4. Save for other goals
If you feel good about your emergency fund, debt and retirement, you can use your refund to save toward other goals like a large purchase, vacation or a child’s education. A financial advisor can help you talk through trade-offs of funding different goals, as well as various options for saving for them.
If you’re not sure where best to put your refund to work, you can find some suggestions for prioritizing building your emergency, paying off debt and saving for retirement as part of our three milestones for financial stability.
Don’t feel too good about a large refund
While it’s nice to get a big check in the spring, what that really means is that you’ve given the government an interest-free loan through your withholding and tax payments. And you could have put those funds to work sooner had you kept them. If your refund is substantial, you might want to make some adjustments for 2025. Use the IRS Tax Withholding Estimator or get advice from your tax professional on how (and how much) to adjust your withholding or tax payments this year. If your income is difficult to predict, you might even want to do this twice a year (once earlier in the year using estimates and once later when you’re more confident about your taxable income).
You should absolutely enjoy your tax refund. After all, you earned it! But you can also make it work for you, building more financial stability and helping you create a more secure future. Start thinking now about how you can make the most of the funds once they hit your bank account. Your future self will thank you.
Important information:
Edward Jones, its employees and financial advisors cannot provide tax advice. You should consult your qualified tax advisor regarding your situation.
1 Source: IRS: Filing season statistics for week ending May 10, 2024.
2 Source: The Fed: Report on the Economic Well-Being of U.S. Households in 2022 (released May 2023).