Money Smarts Blog
What to do with your tax refund
Jan 13, 2025 || Jim O'Leary, Financial Health Coach
Stop me if you’ve heard this one …
Person: “What’s up?”
Me: “My stress levels.”
OK, OK, groan all you want — but that dad joke is painfully relatable for the 72% of adults who stress about money, according to the American Psychological Association. With tax season upon us, you might be stressing about whether you’ll be getting a refund this year, or what to do with it if you are expecting a check from Uncle Sam.
Save yourself a little stress and follow our tips on making that extra cash work for you.
1. Clear debt with a Share Pledge loan
This is a powerful tool that packs a one-two punch. Not only are you building credit as you pay off your debt, you’re also building a nest egg for the future. Here’s how it works:
Let’s say you get a $3,000 tax refund. With a Share Pledge loan, you’ll receive a guaranteed $3,000 loan using your own refund money as collateral. The interest you earn from your initial deposit can help offset some of the interest you’re paying when borrowing from the Share Pledge loan.
You can use the loan to pay down any outstanding debt (or use it on a house or whatever your situation dictates) then the credit union will release your funds back to you once your loan is paid back. This method’s worked for all three of my grown children, so I definitely recommend it for those who would benefit from it.
2. Meet your match (your company’s match, that is)
No matter what, try to put the amount that your company will match into your 401(k) — otherwise, you’re just leaving money on the table. That little extra boost (in 2024 - not to exceed $23,000 for those younger than 50, or $30,500 for those 50 and older) can put you on the path to healthier retirement savings
3. Increase your tax return for next year
I know, I told you to stress less and here I’m telling you to think about next year, but hear me out. Based on the 2024 tax table, you can get $6 back per $50 contributed to your IRA.
Increasing your IRA contributions will not only have a big impact on your account performance in the future, but you’ll also reap the rewards in the form of a tax refund as soon as next year. For 2024, the maximum IRA contribution was $7,000 but you can add another $1,000 catch-up contribution, totaling $8,000 if your 50 years or older.
4. Start early
Since I was 18 years old and filing taxes on my own, I’ve made sure to lower my taxable income by contributing a certain amount to my IRA (see tip #3). This is something I’ve encouraged my own kids to do too. As a teenager, you don’t notice $5-$10 taken out of each paycheck and put into savings — but starting early gives you plenty of years to grow.
PRO TIP: STATUS MATTERS Track the status of your tax return. Whether you owe money or are expecting a refund, you can quickly and easily find out the status of your return by using the IRS’ Where’s My Refund tool or downloading the IRS2Go mobile app.
PRO TIP: FREE TAX PREPARATION Stressing about filing your tax returns? Check out United Way's free tax preparation program.
