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Maximizing Your Tax Refund: 9 Essential Steps for Amounts Exceeding $5,000


Based on a recent GOBankingRates survey on taxes, the top three actions individuals intend to take with their refunds are saving, paying off debt, or covering bills.

“Getting a tax refund of $5,000 or more offers a chance to make strategic financial decisions that can greatly influence your financial well-being in the short and long run,” shared Reagan Bonlie, the founder of Nudge Money.

Here are nine essential steps to take if your tax refund exceeds $5,000.

Make sure to contribute to your emergency fund.

“If you haven’t set up an emergency fund yet, or if it’s not fully funded,” Bonlie suggested, “consider using your tax refund to start or strengthen this fund.”

Curious about the term “fully funded”? According to Bonlie, experts typically suggest saving three to six months’ worth of living expenses.

She highlighted the importance of having an emergency fund to cover unexpected expenses like job loss or medical emergencies, preventing the need to accumulate debt.

Reduce high-interest debt

Consider using your tax refund to pay off high-interest debts like credit cards, personal loans, or payday loans to save on interest payments, according to Bonlie.

According to her, reducing your total debt can not only lessen your financial burden but also boost your credit score by decreasing your credit utilization ratio.

Invest in your retirement for a secure financial future.

Taylor Kovar, a certified financial planner and CEO at Kovar Wealth Management, suggested that a wise strategy for your tax return funds might be to consider investing in an individual retirement account.

Compound interest has the potential to grow your initial investment significantly over time, leading to a more secure retirement. “Consider this scenario: if you were to invest $5,000 with an average annual return of 7%, your investment could potentially grow to over $19,000 in a span of 20 years.”

Invest in yourself

Bonlie suggested allocating a portion of your refund towards investing in personal or professional development courses, certifications, or further education, as it can yield multiple benefits.

“Improving your skills or furthering your education can result in more job options, increased income, and enhanced job stability,” she mentioned.

Enhance Your Living Space

According to Bonlie, making energy-efficient upgrades or essential repairs to your home can enhance its value, lower utility expenses, and help avoid more expensive repairs down the line.

She recommended various home upgrades like blown-in insulation, HVAC system improvements, or solar panels that can lead to significant energy savings over time.

Invest in Health, Set Savings Goals, and Support Charity: Maximize Your Tax Refund


GRANITE FALLS, NC – February 16: Homebuilder Rob Howard poses for a photograph at the Duke Street Cottages, a pocket neighborhood he is in the process of creating in Granite Falls, N.C., Friday, February 16, 2024.

Consider investing in healthcare.

“Investing in your health, like buying a quality health insurance plan, covering essential medical procedures, or contributing to a Health Savings Account (HSA) if you qualify, can help avoid financial stress from medical costs down the road,” Bonlie stated.

Set a Goal and Save

If you have an emergency fund, no high-interest debt, and have maximized your contributions to your retirement accounts, it might be a good idea to start saving for a specific goal you have in mind.

“If you’re looking to save for a down payment on a house, a vacation, or your child’s education,” Bonlie suggested, “putting a portion of your refund towards these goals can expedite your progress without relying on debt.”

Support a good cause by making charitable contributions.

If you’re financially stable, Bonlie suggests donating a portion of your refund to a charitable cause.

“This can not only assist those in need but might also offer you tax deductions for the following year, depending on your tax situation,” she explained.

It may be beneficial to review and potentially adjust your pay stub withholdings.

According to Christopher Stroup, a certified financial planner at Abacus Wealth Partners, receiving a substantial tax refund indicates that you have been paying more than your fair share of taxes to the federal government.

“A tax refund is basically an interest-free loan you’ve given to the government,” Stroup explained. It would be more financially savvy to tweak your tax withholdings at work to have less taxes taken out of your paycheck each time, rather than waiting for a tax refund to get back the overpaid amount.

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