Tax refund check
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In 2018, over 154 million people filed tax returns with the Internal Revenue Service. Nearly 112 million of those taxpayers received a tax refund back from the IRS in return.

For a lot of people, a tax refund represents the largest influx of money they will receive all year long. Even if you don’t fit into this category, any refund you receive may still provide extra, non-budgeted funds which you get to decide how to use.

Sure, a little unrestricted spending might be fun in the short term, but this year why not consider using your tax refund to invest in yourself? Instead of spending the money on a vacation or a whirlwind shopping spree, here are five options which might benefit you far more in the long run.

Pay off high-interest debt

Are you currently revolving outstanding debt on your credit card accounts? Do you have other loans which feature high interest fees? If so, using your tax refund to pay down that expensive debt could be a smart move.

Paying down your expensive credit card debt can save you money and might give your credit scores a boost, which makes doing so a win-win.

Logan Allec, CPA and owner of the personal finance website “Money Done Right,” believes eliminating high-interest debt is one of the best ways you can invest your tax refund. “I tell my clients that every item of debt they have is a horrible monster. The higher a particular debt’s interest rate is, the faster that monster grows!”

Allec continues, “If you can use an unexpected windfall such as a tax refund to knock out or shrink one of these debt monsters, I guarantee that you will feel better about yourself than if you spent it all on Amazon. You’ll also be on the path to a happier financial future.”

Invest in an Individual Retirement Account (IRA)

According to a Bankrate poll, twenty-eight percent of employed Americans reported to be saving more for retirement in 2018 than they had the previous year. Yet many may still not be saving enough.

If you’re behind on your retirement savings goals (or simply wish to grow your nest egg more), it might be wise to use your tax refund to play a little catch up.

Rich Guerrini, President and CEO of PNC Investments in Pittsburgh, suggests that for some, an Individual Retirement Account (IRA) may be a good fit as a retirement savings vehicle.

“An IRA can allow you to invest for retirement on a tax-deferred basis and your contributions may be tax-deductible.”

Just keep in mind, Guerrini points out, that the deduction may be limited if you or your spouse are covered by a retirement plan at work and your income exceeds certain levels.

“For 2017 and 2018, your total contributions to all your traditional and Roth IRAs for the year cannot be more than $5,500 ($6,500 if you are age 50 or older) or, if you made less than that, your taxable compensation for the year.” Guerrini continues, “Roth IRA contributions (which aren’t tax deductible) may be limited based on your filing status and income.”

Supplement your budget and increase your 401(k) contribution

Many people don’t contribute as much as they could to a 401(k) because they need (or at least think they need) access to more of their income for day to day expenses. If this describes you, Certified Financial Planner R.J. Weiss, founder of “The Ways to Wealth,” has some advice.

“One of the best ways to invest your tax refund is to use the refund itself for everyday expenses, while increasing your 401(k) contribution. This is especially true for those who are not taking advantage of their employer’s full 401(k) match.”

Weiss adds another suggestion. “As the amount you receive in your paycheck declines, challenge yourself to live off this lower figure in the coming weeks and months. Ideally, you want to adjust your budget to maintain the higher contribution percentage to your 401(k).”

Pay down your mortgage

Another interesting idea for investing your tax refund is to consider using the surplus of funds to pay down your mortgage. Andy Hill, founder of the “Marriage, Kids and Money podcast,” is a big advocate of this approach.

Hill explains how, over the past five years, he and his wife would take the entirety of their tax refund check and throw it directly at their mortgage loan. “That combined with extra monthly principal payments and living off 50% of our income helped us to become mortgage free in our 30’s.”

It’s a decision the Hill family is happy they made. “We definitely could have had more fun instantaneously by using our tax refund for a new TV or tropical vacation,” Hill said, “but the mortgage freedom we have today opens up so many more options for us.”

Pay your insurance premiums in advance

Another smart way to use your tax refund is to consider paying your insurance premiums in advance. Many insurance companies will offer you a discount if you agree to pay your full premium at once.

In addition to this potential savings, Sa El, Co-founder of Simply Insurance, points out that paying your insurance premiums could “give you the ability to clear up monthly bills for one year.” Those extra monies can allow for extra savings opportunities and may add a little padding back into your monthly budget.

For this reason, El believes “the best way to invest your tax refund is to pay up your insurance policies in advance.”

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