It’s always a great feeling to find out Uncle Sam is giving you back some of that hard earned money, isn’t it? And understandably, you may want to go out and have a good time or buy that nice trinket you’ve had your eye on; but before you do, think about it. What if your tax refund could effortlessly grow? Or put you in a position to improve your financial situation? Well, it can! Read on to find out how.

ONE: SAVE IT FOR A RAINY DAY

Everybody knows the importance of starting an emergency fund, but not everybody can afford to build an adequate one. The goal for an emergency savings account should be at minimum two weeks pay, ultimately working up to 6 months worth of pay.

In 2016, the United States Census Bureau determined that the U.S. median household income was $57,617. If you fall close to that amount, your emergency savings goal should be at least $2,208 but preferably $28,808. That’s a lot of money!

Saving your tax refund is a great way to put a significant amount of money into emergency savings for people who otherwise couldn’t afford to do so.

TWO: WATCH IT GROW

While saving money is indeed more ideal than spending it, an even more exciting option is to watch it effortlessly grow! There are many interest-bearing vehicles you can use to build your wealth; with the faster earners being more inherently risky. Below are some of the most desirable ways to earn income on your tax return.

• Put it in a High-yield savings or money market account.
  If you are going to save your tax refund, you might as well save it in an account that earns more. Although interest rates will vary, in today’s market, many accounts are offering well over 1% interest. High-yield savings accounts and money market accounts are similar in that both are FDIC insured and earn higher interest than a run of the mill savings accounts; they also may or may not have minimum deposit requirements and fees.  The most significant difference between these account types is in the way you access your funds. Money market accounts tend to be more flexible than savings accounts through the use of checks or debit cards (or both). Although both account types are safe investments, details can vary widely depending upon the financial institution you choose, so choose wisely.
• Put it in a Certificate of Deposit (also known as a CD).
  Virtually risk-free, a certificate of deposit is a deposit you make to a financial institution for an agreed upon length of time. You can choose between a short or long-term CD; with long-term CDs earning higher interest than short-term CDs. Currently with Certificate of Deposit’s earning around 2.45%+ interest, they are often a more attractive option than savings accounts with the drawback being that your money becomes less accessible, which could be a good or bad thing. If you have a large amount of money, and you don’t want to tie it up for a long period, you can use the CD ladder strategy; which is to split your money between short and long-term CD’s, to access portions of your money sooner.
• Put it in a U.S. savings bonds (or two or three).
  The U.S. savings bond is a way for the U.S. government to raise funds while providing an opportunity for investors to earn interest. You can think of a savings bond as a loan to the government from you that will be paid back, with interest on a predetermined date. Let’s discuss the two most common types of savings bonds.
  1. EE Series Savings Bonds: These bonds use to be available as a paper bond but are now only available electronically. Although the bonds are treated differently, the outcome of doubling in value with extra interest is the same. For simplicity sake, we will discuss electronic EE bonds, as they are the current standard. Electronic EE series savings bonds are bought at face value and are guaranteed to double once they hit maturity at 20 years. After the initial 20 year term, the bond will continue to accrue interest for an additional ten years. This ten-year period is an extended maturity period. After 30 years the bond will stop earning interest. Upon the full 30-year maturity, you will receive twice what you paid for it plus interest.
  2. I Series Savings Bonds: These bonds are also bought at face value, but unlike an EE bond, it does not have a guarantee to double. Instead, I series savings bonds accrue interest that is inflation-adjusted every six months. They can earn interest for up to 30 years. Although paper bonds are no longer directly sold, they can be purchased as part of a tax refund. Otherwise, you can buy them electronically.The interest you earn on both types of bonds is taxable at the federal level. However, for I series bonds, earnings may be tax-free if used for qualified higher education expenses. Additionally, you can redeem both types of bonds after 12 months, but redeeming them before they are five years old will cost you the last three months of accrued interest. U.S. Savings Bonds are backed by the U.S. government, and cannot be bought or sold on the secondary market, placing them among the safest of investments. You can purchase savings bonds online from the U.S. Treasury website.

• Invest it in the stock market.
  It used to be that brokerage fees would keep the average person from participating in the stock trade. Well, no longer! With the emergence of the free stock trading app Robinhood, everyone can invest in the stock market! If done wisely, stock market investments will give you a higher return than almost anything else you could invest in, but of course, it also comes with a healthy dose of risk. That’s why, before you decide to spend in the stock market, we recommend you educate yourself first. Luckily, there are plenty of free stock market educational courses out there; one of our favorites is the Morningstar Classroom.

THREE: PREPARE FOR THE FUTURE

Let’s face it, none of us are getting any younger, and living is expensive. The sad fact is, the more we age, the more diminished our ability becomes to get out there and competitively earn. That’s why using your tax refund to start a retirement account is a smart decision. While you have likely heard of a 401(k) or an IRA through your employer, many people are eligible to open a Roth or Traditional IRA account individually, separate from employment. Let’s break down eligibility, benefits, and tax benefits of the two most popular IRA account types.

Traditional IRA

Eligibility: Anyone with earned income younger than 70½
Contributions: Up to $5,500 (under 50) and $6,500 (over 50).  Contributions are made from pretax dollars.
Withdrawals: Withdrawals are penalty-free at age 59 ½. Mandatory minimum required distributions begin at age 70 ½. Taxes are paid upon withdrawal.
Tax Benefits: Lower your taxable income in the contribution year

Roth IRA

Eligibility: No age limit but has income restrictions. Single tax filers must make less than $135,000 (phase-out starts at $120,000); Married filing jointly must make less than $199,000 (phase-out starts at $189,000).
Contributions: Up to $5,500 (under 50) and $6,500 (over 50). Contributions are made from after tax dollars.
Withdrawals: No mandatory withdrawals. Contributions (not earnings) can be withdrawn tax and penalty free at any time.
Tax Benefits: Tax-free earnings and withdrawal in retirement five years after your first contribution at age 59 1/2.

If you are eligible, you can have both a Roth and Traditional IRA account, but the total contribution across both accounts cannot exceed the contribution limits of $5,500 (under 50) or $6,500 (over 50).

There are many things to consider when considering a retirement account. Most large financial institutions, from banks to brokerages, can help you open the best IRA account that fits your particular situation but be sure to compare fee structures when shopping around. Remember, it’s never a bad idea to invest in your future.

FOUR: PAY OFF EXPENSIVE DEBT

Your debt is costing you money. No matter how low your interest rates are, those credit cards (or that loan) are quite frankly costing you too much. Let’s take a low-interest credit card debt for example:

If you have $3000 worth of debt on a 10.24% interest rate credit card with a minimum payment of $60, you will pay $928 over the life of that debt. That’s over 30% of your principal debt!

Paying off debt with your tax refund will save you more money than any other item on this list. We recommend wiping out your smallest debt first, but don’t stop there! Take the payment you would have made on the debt you paid off and apply it to your next smallest debt until all of your debt is paid off. This strategy will create a debt payoff momentum, and with consistency and perseverance, you will find yourself debt free. After all the only good debt is no debt!

Want to know how much your debt is costing you? Use this repayment calculator from Bankrate.

FIVE: INVEST IN YOURSELF

Are their things that you’ve always wanted to do to improve yourself or your situation, but haven’t had the funds? Perhaps you wanted to change careers but needed to pay for training or a license. Maybe you want to start a small business or take a creative writing class. Whatever it is, do it! Using your tax refund to broaden your horizons, enrich your life or improve your financial health is always going to be worthwhile!

SIX: INVEST IN YOUR CHILDREN

Your child’s education is a great place to store your tax refund dollars, and if you put it in a 529 savings plan, that money will grow tax-free. Start early and invest your refund every year and your savings growth could be significant enough to get them through college!

A 529 Savings Plan is a savings account that is sponsored by a state or educational institution and is a favorite way to save for education. It allows you as the account holder to establish an educational savings account for a beneficiary. The money deposited into the account can be invested in a multitude of ways, though most likely, you will be offered a variety of portfolios from which to choose.  Earnings are not subject to federal tax, and depending on your state, you may also qualify for a state tax deduction. Withdrawn funds are not taxed when spent on qualified educational expenses. Qualified expenses include tuition, mandatory fees, supplies and room and board. Also, thanks to the new federal tax laws, up to $10,000 of tuition for schools K-12 are considered a qualified expense, but because 529 savings plans are state-run, we recommend you check your state tax laws to ensure there are no discrepancies between your federal and state tax parameters.

Putting your tax refund windfall into a 529 savings plan is a great way to invest in their future and yours, after all, they’re the ones that will take care of you when you’re old! Ha! But all kidding aside, there is no better place to put your refund than behind your child’s education.

SEVEN: BUY EXPERIENCES NOT STUFF

If money burns a hole in your pocket, and you can’t handle the thought of not enjoying your tax refund, don’t buy stuff; take a vacation. Use your tax refund to experience new people and places. Plenty of research has suggested that people enjoy greater well-being from life experiences over material items, so go ahead and splurge but make it count! Remember, time is finite, and we can’t take all of that fancy stuff with us.

In conclusion, although some of these choices may save or make more money than others, all of them are great ways to use your tax refund!