These tips from CPAs can help you make the most of your tax refund.

CHICAGO, April 29, 2024 – Tax season is behind us, and if you’re one of the millions of Americans getting a tax refund this year, hopefully it’s already in, or will soon be hitting, your savings account. Whether large or small, there are some smart money moves you can make to set yourself up for financial success in 2024 and beyond. Here, the Illinois CPA Society shares three recommendations for putting your refund back to work for you.

1. Secure your emergency savings. A recent Bankrate survey found that more than half of American adults (56%) lack sufficient savings to shoulder an unexpected $1,000 expense, while nearly one in four (22%) have no emergency savings at all. If you fall into either category, or if your emergency savings just doesn’t seem like it can cover you during a dicey “what if…” scenario, using your tax refund to give it a necessary boost is never a bad idea. A great goal is to have at least six months of living expenses in an accessible, interest-bearing savings vehicle, like a high-yield savings account or callable certificate of deposit.

    

2. Pay down debt. Total U.S. household debt rose to an all-time high of $17.5 trillion last year, including more than $1 trillion in credit card debt. If you’re incurring interest expenses on loans and credit cards, using your tax refund to pay down a chunk of debt is the equivalent of giving yourself a raise. Think of it like this, if you have $10,000 in credit card debt incurring an 18% interest rate fee each month, you need to earn $2,250 a year (pre-tax) just to pay the interest! If you were to get a $5,000 tax refund and use it to pay down your credit card debt so you incur less interest, it would be the same as if you earned a raise of more than $1,000. It’s often recommended to pay down debts incurring the highest interest rates and charges first, along with those with interest rates greater than what your savings accounts are paying. Going from being an “interest payer” to an “interest earner” is one of the most important financial transition points in anyone’s lifetime, and the faster this happens, the sooner you can allocate more income toward your future well-being.

    

3. Invest for the long term: Making long-term investments is critical to having a healthy financial future. Once your emergency savings is established and your debt is manageable, funding retirement accounts and making other investments should become a priority. Great places to park a tax refund could be an individual retirement account (traditional or Roth IRA), health savings account (HSA), TreasuryDirect account, or even a taxable brokerage account. Funding one or more of these accounts could be in your best interest depending on your investment goals and risk tolerance. And while each of these account types offer access to different investment vehicles (i.e., stocks, bonds, mutual funds, etc.) and have different income and tax considerations to account for, the bottom line is that investing for the long-term is a savvy savings strategy.

Overall, the importance of setting yourself up for financial success cannot be discounted, and your tax refund might be the perfect way to get your savings on track. Of course, a CPA—a certified public accountant—can help guide you toward the best place to park that cash. Your CPA can help you maximize your tax refund, make a financial plan, and manage your finances today and well into the future. The Illinois CPA Society’s free “Find a CPA” directory can help individuals find the trusted, strategic advisor that’s right for you based on location, types of services needed, and languages spoken. Find your CPA at www.icpas.org/findacpa.