20 Things to Do With a Tax Refund

Tax refunds are sort of a forced savings account for many people. While it makes sense to adjust witholdings to minize a tax refund, there are a number of useful things to do with one besides blow it on a new television.

Newly planted tree, Annapolis by chesbayprogram on Flickr

Smart Things to Do With a Tax Refund

1. Pay off high-interest credit-card debtEliminating credit card debt is one of the smartest ways to spend any windfall. The higher the interest rate on your debt, the bigger the payoff. Think about it; where else can you get a guaranteed return of 22% on your money?

2. Rebuild your emergency fund. Thanks to unemployment, underwater mortgages, and a general economic funk, many households have had to turn to emergency funds to weather the storm. It makes sense to allocate some or all of your tax refund towards covering future emergencies.

3. Create your own “car insurance savings account.” If you currently have a $250 or $500 deductible on your car insurance policy, consider raising it to $1,000 and parking $1,000 of your tax refund in a dedicated savings account. You’ll enjoy a permanent way to save money on car insurance premiums, and earn a little interest on your savings account.

4. Boost your retirement savings. If your debts are paid, and you have plenty of money saved for emergencies, the next biggest bang for your refund buck is to invest in your retirement. Maybe that means funding a Roth IRA, if you are eligible. If not, drop the money in a savings account, increase contributions from your paycheck to your 401k plan, and use the savings to offset the difference.

5. Purchase a gym membership. Many gyms offer significant breaks for those that opt to pay one year in advance. My gym offered two free months and waived the registration fee if I agreed to pay for the full year, effectively shaving $90 off my annual gym costs. Be sure to check out the gym’s refund/cancellation policy before agreeing to such a long commitment.

6. Invest in a DRIP. Consider dropping some money in a dividend reinvestment plan, or DRIP, or using a low-fee broker such as ShareBuilder or ScottTrade to start a position in a company with a long track record of increasing dividends.

7. Build your college savings. It’s tough to carve out retirement savings, college savings, and put a roof over your family’s head and food on the table. After all, there are only so many dollars to go around. Boost your kids’ college savings by opening a 529 college savings plan (here’s a look at the best 529 plans).

8. Help your kid save for the future. If you are the parent of a teenager that earns an income, did you know you can help them open a Roth IRA? No kidding. The only requirement is that your teen files a tax return. He or she can invest in a Roth IRA up to their earnings, or the maximum yearly contribution, whichever is smaller. So, if your daughter earned $1,800 last year babysitting, kept meticulous records and files a tax return, you could gift her $1,800 to invest in a Roth IRA. She’ll be well on her way to becoming a millionaire.

9. Start a side hustle. Ah, the infamous side hustle. Many of the world’s most successful entrepreneurial efforts were started on less than $1,000 (I started Frugal Dad on less than $50!). Use your tax refund to seed a business you’ve always dreamed of running.

10. Invest in a home improvement project. Lean towards projects that improve your home’s efficiency long term. Consider installing a programmable thermostat, or a hot water heater insulating cover.

11. Open a “Car Replacement Fund.” Let’s face it; the car you are driving now will eventually die. Why not divert a little tax refund money to start a car replacement fund. If your current car is paid for, save what amounts to be a car payment in this account and when the time comes you can pay cash for your next car.

12. Build a square foot garden in your backyard. Use a couple hundred dollars of your tax refund to purchase gardening supplies, soil, and seeds. Now’s a great time to plant, and soon you’ll be enjoying tomatoes right off the vine, instead of those shipped across the country in your grocer’s produce section.

13. Give it away. If you’ve been considering giving money to a charity, now is a great time. Donating your tax refund to a worthy cause can even help on next year’s taxes, as most charitable contributions are tax deductible. With a down economy, and recent large scale disasters such as the tsunami in Japan, relief organizations could use the help.

14. Pay extra on your mortgage balance. We personally plan to pay off our mortgage early. Why? Because we value the freedom a debt-free lifestyle affords. Some will argue that we are missing a tax break (you know, getting to deduct $3,000 from our income for sending $10,000 to the bank in mortgage payments), but living mortgage-debt free provides a lot of options.

15. Get your will done. My wife and I recently updated our wills after a death in the family. Identifying guardians for your children, and disposition of your stuff in the event of your death is not fun, but it is absolutely necessary. If you have kids and do not have a will, stop everything, financially, until you have enough saved to visit an attorney and have one drawn up. It is that important.

16. Take a class. It doesn’t have to be an academic class, but it could be. Maybe you’d like to learn more about cooking, or self-defense, or real estate. Investing a little tax refund money in yourself can go a long way.

17. Go on a “paid-for” vacation. My family recently enjoyed our first cash vacation, and it was awesome! I didn’t have any bills to dread on the ride back home.

18. Hire a chef for the week. No, not so you can experience the life of the rich and famous. Hire a chef to cook in your home for one week and teach you various ways to cook healthy meals for your family. When the week is up, apply the new techniques and ingredients to make meals for your own family.

19. Plant a tree, or two. Not only will planting a tree add value to your property’s curb appeal, but in a few years the shade will help lower utility costs in the summer.

20. Create a checking account buffer. Leave the refund in your checking account, but pretend your account is really zero. For example, if your refund is $500, leave that money in your checking account, but do not include it your register balance. The extra buffer will help you avoid fees associated with going below zero.


  1. Stock up the larder…. buy non-perishables – beans, rice, cans, dried foods, etc – as a hedge against rising grocery prices, or just as an emergency stash in case your income changes.

  2. We used our refund to fund a few accounts that help throughout the year –

    1. Bulk up emergency acct.
    2. Fund quarterly & bi-annual bills acct. (ex: water bills, car insc., etc.)
    3. Kids’ summer fun and next fall’s school supplies/clothing acct.
    4. medical appts. and prescription co-pay acct. (homemade HSA!)

    Nothing exciting or extravagant but it does help us sleep better! 🙂

  3. How about prepare for a disaster? Put some non-perishable food and a gallon of water in your car, make sure you have some water stored at home (1 gallon/person/day), replenish First Aid kits, buy back up batteries for flashlights, buy a fire extinguisher, etc. Everyone thinks it won’t happen to them, until it does.

  4. On “14. Pay extra on your mortgage balance.” – I agree with the advice. But I don’t understand how paying mortgage interest for the sake of a tax break makes sense. There’s no reason to pay interest on the mortgage just to get a percent of the money back as a tax break. Too many mortgage brokers have tried to sell that argument to me.

    Am I missing something here?

    • No, I agree with you. Some things are lost in written communication, because that was meant to sound more “tongue in cheek” than it did on paper (well, virtual paper). I’ve expanded on the original point to sound a bit more sarcastic.

      You are absolultely correct; makes no sense to keep sending $10,000 to the bank to deducted $3,000 from taxes. Besides, from the political rumblings I’ve heard lately, I doubt that deduction will be around much longer anyway.

      • I paid off my mortgage a decade ago. A little later, I was laid off (along with 90% of the workforce) in a corporate merger. Without much of an income, that mortgage interest income tax deduction would not have done me any good. Even with an income, paying $100 to the bank to get $30 back from the government is not a great idea.

        Most people need a mortgage to buy a home, but if you can afford to pay it off early, you really should.

        • I really appreciate your perspective, Don. When people start getting into the interest tax benefit, I always feel like they’re totally missing the point. If something REALLY bad happened, you’d have a place to live.

  5. Very good options. Like marci357, I always take the opportunity to stock the pantry. You never know when that will come in handy: bad weather, children too sick to go to the grocery store, financial woes, a flat tire, etc. Being prepared gives you a peace of mind that is priceless.

  6. I love #3 very clever and original idea, so many pay for insurance and never end up using it so this would be very beneficial for them.

  7. Ah, tax refunds… straight to the RRSP for the double whammy: retirement savings and a tax deduction.

  8. I really like the idea of #3 – create a car insurance savings account. My car insurance also offers a 3% discount if you pre-pay the entire year rather than pay by monthly instalments.

    Not sure about the gym membership, they can be a giant waste of money if you sign up for a long term and stop going after a few months (like I did).

  9. Great List. To be honest I’m a saver, so I usually have my tax refund direct deposited right into my savings account. If I have enough money in my savings account, I open a CD because it have a higher payback in interest.

  10. I’d love to spend my return on a luxury vacation. Instead it’ll go towards 1 and 2 to makeup for 1/2 year of being without a job. Being an adult is so boring.

  11. Buy high capacity magazines for your guns and extra ammunition! Buy a new gun. Take marksmanship lessons. Join a range…

    Buy an ounce or two of gold bullion or some “junk” silver.

    Save up for an expensive project like repaving the driveway or re-roofing the house.

    Have dangerous trees trimmed or taken down.

    Install advanced energy efficiency items like reflective wrap in the attic – cuts heating and cooling costs by ~20%.

    Do a major repair or service to your car to keep it on the road instead of buying a new car. $1500 to $2500 may seem like a lot to spend on your 5 yr old car, but a new car is MUCH more expensive. Make a giant car payment instead of paying your mortgage early; it’s a better financial move.

    Use it to finally do something about that leaky basement!

    Pay for minor plumbing or electrical work that you can’t do for yourself. These jobs often cost hundreds of dollars and can be hard to pay for out of the regular monthly budget.

    Get a new exterior door, attractive and energy efficient.

    Have your lawnmower serviced professionally – oil change, carb cleaning, blades sharpened. Extend the life of your valuable equipment. Have your chainsaw blade sharpened.

    Fund your Roth IRA or regular IRA. Fund your child’s Roth IRA or start one for him.

    Buy some quality cookware. I’m now using my grandmother’s Lifetime pots and pans. You can’t tell they’re not new but they’re at least 50 years old.

    • Wow Ken. Your list is almost verbatim what my husband and I are doing with our refund.

      We’re already stocked up on guns and ammo so no need to buy more there.

      We have been looking at purchasing some gold or silver. BTW, have you hear of rhodium? that came up on some of my searches as well but I hadn’t hear of it before.

      We’re planning to repave the driveway.

      We’re taking down a dead tree in our yard and planting a new one (that we got for free as a clipping from another tree and have been growing inside.)

      We’re looking into some wind based energy options to cut down on our electric costs (our whole house is run on electric so that could be a great savings and a good backup in worst case scenarios). We’ve found a lot of good do-it-yourself sites for this.

      We’ve had 2 cars in the shop already, to get repaired and spiffed up. We have two more to go.

      We plan to get a contractor in to finish up some long awaited, half-done projects.

      Planning to purchase a new chainsaw and looking to get blades sharpened.

      Also looking to get new carpeting.

      Plan to invest about $1000 in a home business venture

      I’m not sure if we can stretch it to cover all of that but I think we can. We got a really big return this year.

      Part of us is tempted to just throw it all at the mortgage though lol. We’d love to do that but we feel like it’s time to get caught up on some maintainence we’ve been putting off while we were paying off our debt and building our emergency fund. We just got the refund last friday so right now it’s just sitting there gaining interest until we find the best deals possible.

      • Hi Amy,

        Regarding Rhodium, yes, I’ve heard of it. I wouldn’t personally invest in rhodium rounds as an investment – and my gold bullion and junk silver aren’t investments either. The fact that they’re are appreciating in value is nice, but it’s not why I would buy them. Gold and silver are recognized as money all over the world. Rhodium is not. I’m also not familiar with the buy/sell spreads on rhodium. For instance, you can get a gold coin (Kruggerand, anyway) for about 5-6% over the spot price. Pure silver bullion coins are going for much more than 5% over spot but junk silver (US coins of $0.10 and higher pre-1965) has a lower premium and is 90% silver.

        If you choose to sell your gold bullion, depending on where you sell it, you will get between 0-5% over spot. What’s the spread on rhodium? I have no idea! If you’re serious about investing in physical rhodium (*always* take physical possession of your precious metals) then talk with the dealer about the buy/sell spread. They should be very up-front with you. If they’re not don’t do business with them.

        There is a lot of emotional comfort in paying off your mortgage early, but from a purely financial standpoint it doesn’t make any sense. Inflation is eating away at the value of the dollar every year at an increasing rate. The dollars you send to the mortgage company 5 years from now will be worth a LOT less than the dollars you’re sending today.

        Inflation is caused by the Fed increasing the money supply, ala QE2 and the QEs that will follow. It’s legalized theft but when paying off a debt at a fixed rate over a long period you’re letting inflation work in your favor and essentially screwing the bank.

        Note that “price inflation” and inflation aren’t the same – but are closely related. When the price of OJ and bread go up, that’s price inflation. Inflation is defined, in economic terms, as an increase in the money supply (printing dollars, monetizing the debt, when the Fed buys Treasury bonds). That will eventually lead to price inflation.

        Good luck with the wind-turbine research. I looked into it only superficially and got the impression that it wouldn’t pay a return vs normal electricity cost from the grid. But if you can get enough power to run disconnected, which will require battery storage for calm periods, then you’ll be at an advantage if the power goes out.

        Same thing with photovoltaic solar. A system big enough to provide all your power is about $50k. Even if the subsidy is 50% there’s about a 15 year payback – and the expected life of the panels is 12-15 years.

  12. Dean,
    As a regular gym goer, I like those people too!
    My gym typically buys new equipment each summer and, when I asked how they decided on a budget for new equipment, they said they have tracked the % of New Years Resolutioners ( New January memberships that pay in advance and stop coming) over the last few years and use that % of increased income in January as a guide.
    I thought that was rather savvy of them.

  13. Great article. I used mine on option #1 this year, but hopefully by next year I will be debt free except the mortgage. Next year I hope to take option #13 to help out a friend or family member.

  14. Great ideas that I’m going to save for any kind of cash windfall I experience. Right now, I’m focused on reducing credit card debt. I just got them transferred to a no-balance-transfer-fee, no-interest-for-1 yr. Discover More card, and I think I can get this $10k of credit card debt knocked out in less than a year.

    • Great Job Bobbi. I’m glad you’re taking the initiative to pay down that debt. Plus, you’re using one of my favorite credit cards. When you pay down that debt I would suggest using your Discover More credit card for everyday purchases and pay your balance off in full each month. This way you never pay interest on your card. In fact, you will end up making money off the credit card for your everday purchases through the cashback rewards program. I made $200 last year by using my credit card for everything from utility bills to groceries. Just make sure you have the money to pay the bill every month in FULL.

  15. I think the real question is….why are you getting a refund? If your financial planning is up to par, you should plan to get very little or actually own about $100, otherwise your giving the government interest free money.

  16. Very useful, I’m one of those late people that just finished mine. As my first child was born last year, this is the first time I’m receiving the child credit and….wow…quite the boost. It was definitely worth reading about ways to not let such a boost go to waste.

  17. We are saving ours for what we I’m calling an “emergency housing fund”. We love our house, but it is small and my mom is 78. We may never need to tap it, but there may be a time when she can no longer live on her own and it’s not always easy to predict when/if that will happen.

    It can also double as a next car fund as well. Same deal. My current job comes with a car, but that can be taken from me at any time in the event of a job loss or job change.

  18. Paying off any high interest debt will save you money in the long run, but it can be pretty tempting to buy something frivolous with the money, especially if you weren’t expecting it.
    I feel completely different about the money that i’ve worked really hard for, than something like a refund that i wasn’t counting on. I really want to buy an ipad, but i’m going to do my best to resist that urge.

  19. It’s a nice gesture, but I’m not sure giving money away is the most frugal thing to do in the world. Keep that extra money close!