The average federal tax refund so far this year is $ 2,865 – up from the 2020 average. Instead of using the money on a summer vacation, many people who have lost their jobs due to the coronavirus pandemic have to use their refund to pay buy the mortgage or groceries.

If you’re lucky enough to get the essentials done, you might be tempted to indulge in a takeaway from your favorite restaurant or a nice bottle of wine. Fine. But once you’ve scratched that itch Consider these ways to let the rest of your tax refund work for you.

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Support (or start) your emergency fund

Even if you work now, there is no guarantee that your hours will not be cut, your salary cut, or your job canceled. That said, it is more important than ever to save money for emergencies. That way, you don’t have to go into credit card debt or raid your retirement assets to pay the bills until you get back on your feet.

Aim for six months of cost of living – more if you are the only provider for your family. Interest rates are currently incredibly low, but you can get higher interest rates by depositing your savings into an online bank account. Look for a device with no minimum balance or monthly fees.

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Pay off high-yield debt

While interest have fallen, most credit cards still charge more than 15%. Withdraw these unpaid balances and you will get a return on your investment A successful hedge fund manager would envy him. If you are able to pay off the entire balance, there are also no monthly costs that will give you some breathing space if you lose your job.

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Save for retirement

Image of an elderly woman with a purse that is almost empty

If you have a Roth or a traditional IRA, some of your refund money should be deposited into the account now so that you have more cash in retirement. If you don’t already have an IRA, consider getting one. The Maximum amount You can contribute to your IRAs in 2021: $ 6,000 – $ 7,000 if you are 50 years or older. So you can keep all of your refund there if you don’t need it for anything else.

If you’re not inclined to build your own portfolio, consider investing in a Target date fundwho invest in a mix of stocks and bonds, depending on how many years away you are from retiring.

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Support a good cause

Image of a keyboard with a red button marked with a heart and the word "donate"

Food banks have been overwhelmed in recent months, and other nonprofits that provide social services to people in economic distress have also reached their limits. Donating part of your tax refund will help you accomplish your mission and you will also receive a modest tax break. In 2021, taxpayers claiming the Standard Withholding can deduct up to $ 300 in cash for charity. The deduction is per person, so a married couple claiming the standard deduction can deduct up to $ 600 in cash (in 2020, the deduction was capped at $ 300 for married couples).

When you list, the amount you can deduct for cash deposits is usually capped at 60% of your Adjusted Gross Income (donations above this amount can be carried over for up to five years and withdrawn later). However, the limit has been lifted for the 2020 and 2021 tax years (although there is still a 100% AGI limit on all charitable donations). As with the $ 300 deduction for non-itemizers, this tax break does not apply to donations to donor advised funds and support organizations, or most monetary donations to residual charities.

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Invest in a 529 college savings plan

Image of a 529 plan application form

Contributions to a 529 college savings plan Grow tax free and withdrawals won’t be taxed when used for qualifying expenses like tuition and room and board. You can invest all or part of your tax refund – 529 plans typically have very low minimums. Also, your state may grant you a tax deduction or tax credit when you invest in your own state’s plan. When your children are young you have many years to invest in the plan to sit together and grow. To research plans, go to saveforcollege.com.

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Protect yourself from unexpected healthcare costs

Image of a dollar bill with a hole in it and "HSA" written on a piece of paper in the hole

If you have high deductible health insurance (a deductible of at least $ 1,400 for individual insurance or $ 2,800 for family insurance), you can contribute to a health insurance account. An HSA gives you triple tax breaks – your contributions are tax deductible (or pre-tax if done through your employer), the money grows deferred for tax purposes, and you can use it tax-free to pay medical expenses out of your own every year ( there is no use-it-or-lose-it rule).

The CARES Act has increased the types of expenses eligible for tax-free withdrawals from your HSA. In addition to health insurance deductibles, co-payments, prescription drugs, and medical expenses not covered by your insurance, you can pay for most over-the-counter medicines and feminine hygiene products with tax-free withdrawals. Although health insurance premiums are typically not considered qualified medical expenses, there is an exception if you use withdrawals to pay COBRA premiums or other health insurance premiums if you are receiving unemployment benefits.

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Protect yourself from natural disasters

Image of a hurricane seen from above

The hurricane season is almost here. So if you live in a vulnerable area, consider using your refund money to keep your home safe. A home generator keeps the lights on and food cold during a power outage. A 6.5 kW portable home generator costs around $ 800 to $ 1,000. You can also use the money to pay someone to cut your trees, which will protect your home from some of the most common types of storm damage.