Whether you file your taxes yourself, enlist the help of an online service or advisor, or forward your W2 to mom and dad for filing (no judgment here), your careful tax preparation could mean you’re hoping for a refund from the Internal Revenue Service (IRS).
Naturally, earnings, deductions and credits will vary across taxpayers, but in 2023, the IRS issued more than 110 million individual income tax refunds, totaling about $360 billion. The average refund was $3,252. So, if you are anticipating a tax refund from the IRS in 2024, what are you planning to do with your check or direct deposit? Take a look at our list of ideas that can help you use a potential refund toward your wants and goals.
If you want to increase your savings …
1. Grow your retirement account
Why not give “future you” a little boost? Stashing away your tax refund in a retirement account could give it plenty of time to grow over the years, which might make it a smart addition to your retirement plan. If you don’t already have a traditional or Roth IRA (Individual Retirement Account), this could be a great time to start one.
2. Bolster your emergency fund
Ideally, your emergency fund should hold three to six months of expenses, but you might find it tough to grow your savings when you’ve got bills to pay, groceries to buy and life to live. Your tax refund can add a nice cushion to your rainy-day fund, which you’ll probably be thankful to have at some point — you know how unexpected expenses can pop up at any time! Putting money into savings from your tax refund can allow you to save smart.
Laddering CDs (Certificates of Deposit) is a strategy that can help your savings perform better for you. Rather than keeping your extra cash stored in a savings account, a CD ladder allows you to take advantage of the higher rates generally offered by long-term CDs while still maintaining regular access to your money. Ally Bank offers a range of CDs that can deliver returns over several years at a time.
4. Pay down credit card debt
Credit card debt can incur some of the highest interest rates you’ll find, which can make it difficult to pay down. When you have the chance to knock some debt out, take advantage of the opportunity to reduce (or even eliminate) some of your debt.
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5. Make a down payment on a car
Thinking of upgrading your ride? Using your tax refund to supplement your down payment could be a great way to get a new set of wheels. That’s because a larger down payment can help reduce the finance charges you’ll pay over the life of your car loan.
6. Take a vacation
You might be surprised at how far you can go with your tax refund. Whether you’re in the mood to visit somewhere tropical, historical or cultural, use this extra dough to spend on P.T.O. Or stash it in an Ally Bank Savings Account bucket dedicated to vacations, so it can grow until you’re ready to hit the road.
7. Make a special purchase
Maybe you’ve dreamed of owning an original piece of art to hang in your bedroom or you’re shopping for engagement rings with your partner. If you’ve had your eye on a big purchase that’s out of your typical budget, this could be the boost you need to help you buy.
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8. Adopt a pet
Repeat after us: Pets are expensive. If you’re hoping to expand your family with a furry friend, you might consider using your tax refund to adopt a pet, cover its adoption and initial vet fees, and stock up on food (and some toys, of course). That way, you’ll start pet parenthood off on the right paw.
9. Donate to your favorite cause
Giving to a charity or other organization is a selfless act that can provide a deeply positive feeling. But for many budgets, regular donations may not be feasible. Donating a portion of your tax refund to a charity can be a meaningful way to make the most of your money.
10. Send your kiddos to summer camp
A week away is often an unforgettable experience — but it typically isn’t cheap. Some day camps can cost a couple hundred dollars a week and some overnight camps can range into the thousands. Put your tax refund toward a week of fun for your kids (and just as important, a week of R&R for yourself).
If you're seeking a change ...
11. Do something you’ve never done before
What have you always wanted to do? Hike the Appalachian Trail? Get front-row tickets to a pro ball game? Go on a deep-sea fishing charter? Forgo material items and use your refund to splurge on a once-in-a-lifetime experience.
12. Redecorate a room
You can only rearrange your living space so many times. Take this opportunity to finally buy a new coffee table, reupholster your dining room chairs, invest in a hall rug, go eco-friendly, or add a fresh coat of paint to spruce up your home.
13. Learn something new
Use your extra chunk of change to expand your horizons. Put it toward learning a new skill, such as taking a cooking class, getting a certification or attending a public speaking workshop. Or use it to enroll in a class at your local community college on a topic that interests you.
14. Revamp your fitness journey
Whether you’re new to fitness or well into your wellness journey, you’ll probably agree that living healthy can be costly at times. Consider setting aside your tax refund to cover gym costs or a membership to a fitness studio for a few months or possibly even splurge on a piece of exercise equipment for your house.
Put your refund toward what matters
A windfall in your savings account may seem exciting, but the endless options on how to use it can feel overwhelming. Without a plan, you may end up spending and saving without intention, leaving you feeling like you have nothing to show for it. So, take some time to think about your goals and how a boost can help you get there.