The average tax refund is usually around $3,000, and most people receive the money within three weeks of filing their returns. That's a nice chunk of change. If you have a refund check coming your way, there are plenty of ways to make the most of it. Whether you're looking to build your financial base or reach specific goals, here are some simple and effective ideas to put your refund to good use.

Strengthening Your Finances

Give Yourself a Raise 
If your refund was substantial, and you expect your income and tax liability to be similar for the coming year, consider giving yourself an immediate raise by adjusting your tax withholding to increase your take-home pay.

Pay Off Credit-Card Debt
Using your refund to pay off a balance with an 18% interest rate is like earning 18% on your investments—an incredibly valuable use of your money. Try to pay off your credit card balance entirely and set up autopay for the entire balance every month so it doesn’t build back up.

Rebuild Your Emergency Fund
It's a good idea to keep three to six months' worth of expenses in an emergency fund. This way, you won't end up in debt or have to dip into your retirement savings if unexpected costs arise. If you've had to use your emergency fund in the past few years, you can use your refund to help rebuild it. Keep the money easily accessible in a money market or savings account that earns some interest.

Boost Retirement Savings
In 2025, you can contribute up to $23,500 to your workplace 401(k) or 403(b). If you’re 50 or older, you can add another $7,500. For a traditional or Roth IRA, the contribution limit is $7,000—or $8,000 if you’re 50 or older. Pre-tax contributions will reduce your current income and, consequently, your taxes. However, future withdrawals will be taxable. On the other hand, Roth contributions are not tax deductible in the current year, but any future growth and distributions are tax-free. Either way, contributing and investing funds for retirement is often a powerful way to improve your overall financial well-being.

Fund a Taxable Account
If you've already taken care of other parts of your financial plan, consider investing your refund in a taxable investment account. While it doesn’t offer the same tax benefits as a retirement account, there are no restrictions on how much you can add or when you can withdraw. This type of account is an important bucket to have—it is great for covering expenses that fall outside your retirement savings.


Reaching Your Financial Goals

Build College Savings
Balancing saving for college and retirement can be tough. Here's an opportunity to use your extra money to contribute to a 529 account. You'll be able to use the money tax-free for college expenses, and you might also get a state income-tax deduction for your contribution.

Help Your Child Save
You can use your extra money to contribute to a Roth IRA for your child—they are eligible as long as they have earned income—from mowing yards or babysitting, for example. Your child can contribute up to $7,000 or the amount of their earned income for the year, whichever is lower, and you can give them the cash to do it.

Prepare for Big Ticket Expenses
Instead of using your credit card or taking on debt for big purchases like a vacation, a new car, or home renovations, set aside some money from your refund. This way, you avoid paying interest long after the purchase. Think about what upcoming expenses you’d like to make and keep the earmarked funds in a money market or savings account that earns interest but won’t lose value. While your refund alone might not be enough to redo your kitchen or buy a new car, it can kickstart your savings for these types of expenses and help you avoid building up debt.

Give to Others
If you’ve got your financial bases covered, consider using your refund to make a charitable contribution to help others in need. You'll feel good by helping others—and you'll be rewarded for your good deed when you file your tax return next year, as charitable contributions are deductible if you itemize.

You can also use your refund to help accumulate enough money to open a Donor-Advised Fund (DAF). You can claim a tax deduction in the year you contribute to the fund. Additionally, you can invest and grow the contributions tax-free. Donor-advised funds offer great flexibility regarding when, how much, and to which organizations you can distribute the funds. Besides the current year's tax savings, donor-advised funds are a great way for couples and families to build a long-term giving strategy.  


If you received a tax refund and are unsure how to make the most of it, contact your Donaldson investment advisor to discuss the most effective use of your refund.

To explore how donor-advised funds work, their advantages, and other significant tax benefits they offer, read our article:  What Is a Donor-Advised Fund