2 smart things to do once you have your tax refund


Taxpayers, rejoice: You tax refund may be on its way — or even with you already.

If you're one of the early birds who filed soon after tax season opened on January 27, you may have already received your refund in your bank account. And if you're among the millions of taxpayers who claimed the additional child care credit or the earned income tax credit, you may start to see those refunds arrive in early March.

For many people, tax refunds can be a significant source of extra cash. Though that's exciting, if you're unsure of how best to make use of your return, receiving a lump sum can also feel a little daunting.

Tax season is a good time to assess your financial health and chart a course to achieve your money goals — and make any adjustments that can benefit you next season.

Here are two smart moves to make as soon as you get your refund.

1. Make a plan

In 2019, the average refund was just under $3,000, according to the IRS. That's equal to about three weeks worth of pay for the average American full-time worker, who earns a median $908 per week, according to data from the Bureau of Labor Statistics for the second quarter of 2019.

Getting that kind of money all at once can trigger the urge to spend. Instead, try to set aside a small amount for fun and splurging and use the bulk of your tax refund to help you get closer to any number of financial goals, from paying off debt to saving for retirement.

  • Pay off debt: If you have credit card debt or student loans, start there: putting that refund toward the loans that have the highest interest rates, and making sure that extra money goes towards paying down the principal. Experts say this move will help you eliminate your debt faster and pay less in interest over time.
  • Start an emergency fund: Next, if you don't have one already, consider using your refund to start an emergency fund. Experts recommend putting away enough money to cover 3 to 6 months of expenses in a checking, savings, or money market account.
  • Save for retirement: Consider putting all or part of your refund in a retirement account, such as an IRA or a 401(k). If you get the average return of around $3,000 and put that amount in your IRA, you'd be about halfway toward the annual contribution limit.

If you're not sure how to best use your refund, or you hope to increase your financial literacy in general, consider scheduling a session with a certified financial planner who can help you map out ways to reach your future money goals.

Jean Chatzky explains how to set money goals

Video by Courtney Stith

2. Adjust your withholding

If you received a hefty tax refund, the next thing you'll want to do is figure out why you got that amount back in the first place. It may mean your withholding was off and in that case you may want to adjust the amount of federal tax your employer withholds from your paycheck.

It may seem counterintuitive, but experts say that money could work harder for you if you receive it in regular installments throughout the year instead. Sure, a big refund can give you a head start on reaching your financial goals. But if your plan is to save or invest that money anyway, then putting away a little bit from each paycheck instead of receiving it in one lump sum can make a big difference, thanks to the effects of compounding interest.

You can find everything you need to know on the subject in our guide to adjusting your withholding.

More from Grow:

acorns+cnbcacorns cnbc

Join Acorns


About Us

Learn More

Follow Us

All investments involve risk, including loss of principal. The contents presented herein are provided for general investment education and informational purposes only and do not constitute an offer to sell or a solicitation to buy any specific securities or engage in any particular investment strategy. Acorns is not engaged in rendering any tax, legal, or accounting advice. Please consult with a qualified professional for this type of advice.

Any references to past performance, regarding financial markets or otherwise, do not indicate or guarantee future results. Forward-looking statements, including without limitations investment outcomes and projections, are hypothetical and educational in nature. The results of any hypothetical projections can and may differ from actual investment results had the strategies been deployed in actual securities accounts. It is not possible to invest directly in an index.

Advisory services offered by Acorns Advisers, LLC (“Acorns Advisers”), an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Brokerage and custody services are provided to clients of Acorns Advisers by Acorns Securities, LLC (“Acorns Securities”), a broker-dealer registered with the SEC and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Acorns Pay, LLC (“Acorns Pay”) manages Acorns’s demand deposit and other banking products in partnership with Lincoln Savings Bank, a bank chartered under the laws of Iowa and member FDIC. Acorns Advisers, Acorns Securities, and Acorns Pay are subsidiaries of Acorns Grow Incorporated (collectively “Acorns”). “Acorns,” the Acorns logo and “Invest the Change” are registered trademarks of Acorns Grow Incorporated. Copyright © 2019 Acorns and/or its affiliates.

NBCUniversal and Comcast Ventures are investors in Acorns Grow Incorporated.