Where You Should Never Put Your Tax Refund

For people expecting refunds, tax time always brings up an important decision to make: What to do with your tax refund?

Along with traditional methods like checks and direct deposits, some tax preparation services are now offering refunds as gift cards and debit cards.

Do Not Put Your Tax Refund on a Gift Card

Tax software companies like TurboTax and TaxAct want you to put your refunds on a prepaid debit card.

And although TurboTax has discontinued a similar program, H&R Block is offering to turn your e-filed federal return into an Amazon gift card — along with a 4% bonus.

These offers can look enticing at first glance, but money expert Clark Howard says don’t fall for it — no matter how sweet the deal may seem.

“They’ll tell you all kinds of tall tales about how it’s the greatest thing ever to get your refund on one of these cards,” he said on a recent podcast.

What they won’t tell you — at least in large print — is that you will be fee’d to death.

As consumer site Lifehacker notes, many of these cards come with extra charges, from monthly fees to per-transaction fees and even fees to reload the cards.

“Fee on top of fee on top of fee,” Clark says, “and it’s just terrible how you get ripped off.” As for a tax refund tied to a retailer card, Clark says: “Could there be a worse idea?”

While it’s true that a gift card may be a quicker way to get your money over snail mail, the fact that your tax return is put on a card may tempt you to spend it unwisely.

Clark: Here’s the Best Things to Do With Your Tax Refund

Clark says the best use of your tax refund is to do either of these two things:

1. Pay Down Any Debt That You Have

A tax refund may be just the boost you need to make some serious headway getting caught up on bills and other debt. Here are seven steps to get out of debt.

2. Put Money Into Your Roth IRA

A Roth IRA is a retirement account that allows you to deposit post-tax money into it and withdraw it later tax-free. Here’s a great resource on how to open a Roth IRA.

Final Thought

Clark says the whole principle of the matter is that a tax refund affords you an opportunity to do something smart with your money.

“Neither of those [paying off debt or funding a Roth IRA] are about spending,” he says. “They are both about improving your financial outlook.”

And at Clark.com, showing you ways to improve your financial outlook is what we’re all about!

More Tax Resources for Your Wallet:

• Free Tax Filing Options for 2020
• Here’s Your Estimated 2020 Tax Refund Schedule
• Beware of These Common IRS Scams