Ahead of Tax Day, the IRS has issued more than 70 million refunds, at an average of $3,256.
That’s over $400 more than last year, when the average refund was just above $2,800.
For many Americans, a lump-sum payment of this size is rare and it’s tempting to squander it.
Still, a growing number of tax filers — now 46% — plan to save their refunds, according to a LendingTree survey, up from 41% last year and 40% in 2020. Roughly 16% said they plan to book a trip or splurge.
“It’s tempting to go on a spending spree after the tax season, but do not think of a refund automatically as ‘free money’ that you can use for mindless purchases,” said Simon Zhen, chief research analyst for MyBankTracker.
“Using a tax refund toward improving your financial situation is a good decision that can ultimately save money later.”
In order to make the most of that money, Peter Casciotta, executive director of Asset Management & Advisory Services in Cape Coral, Florida, offers these tips for deciding whether to put those funds toward savings rather than a vacation or new exercise equipment.
When to spend it
If you’re a taxpayer who has limited to no debt, a sufficient emergency fund and your retirement savings is on track to hit your goals by your retirement date, then you can spend your tax refund, Casciotta said.
Most financial experts recommend having at least six months’ worth of expenses set aside in an emergency fund or more if you are the sole breadwinner in your family or in business for yourself.
If you already have a decent emergency fund, then consider your retirement savings, said Rita Assaf, vice president of retirement leadership at Fidelity Investments.
When to save it
You should be saving your tax…
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