8 Smart Ways Pre-Retirees Are Using a Tax Refund To Build Long-Term Wealth
Written by
Jordan Rosenfeld
Edited by
Rebekah Evans
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A tax refund can feel like a financial breath of air, especially for pre-retirees juggling competing priorities.
No matter the amount, used strategically, a lump sum can strengthen your financial footing heading into retirement. Here are eight of the smart ways pre-retirees are using their tax refunds to build wealth.
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1. Treating Tax Refunds Like a Strategic Windfall
Pre-retirees who build wealth with their refunds tend to shift their mindset, treating a tax refund as an opportunity rather than “found money” to spend, according to Alexis Krueger, certified public accountant (CPA) and owner of Krueger CPA.
She said smart pre-retirees view the refund “as a chance to accelerate existing financial goals rather than fund lifestyle inflation.”
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2. Paying Down High-Interest Debt Before Retirement
Taking debt into retirement “is a financial catastrophe,” according to Chad Silver, tax attorney and founder of Silver Tax Group. Not to mention, there’s very little financial investment in the current market that has as good a return as clearing a 22% debt, he added. Â
Paying down high-interest debt, such as credit cards, using a refund, gives pre-retirees immediate relief, as well, said Rob Torres, accredited financial counselor (AFC) and lead financial expert with Cleo. “You’ll save money on interest and make future paychecks feel less stretched.”
3. Boosting Catch-Up Contributions
For those 50 and older, tax refunds can be a powerful way to take advantage of catch-up contribution limits and accelerate retirement savings, Krueger noted.
For example, a $3,000 refund could fund half of the additional $7,500 catch-up contribution allowed in 401(k) plans, potentially growing to over $15,000 by retirement with modest 6% returns.
Where you put it can also compound its growth. “Roth IRAs often provide the greatest long-term benefit for pre-retirees,” she said. The tax-free growth and withdrawal flexibility make Roth contributions especially valuable when funded with money that’s already been taxed.
4. Building or Strengthening Your Emergency Fund Before Investing
Pre-retirees need a strong financial safety net of six- to 12-months of expenses since financial shocks hit harder with age.
“Life happens and an emergency fund helps you handle surprises without stress,” Torres said. “Setting aside part of your refund can create a cushion for things like car repairs or unexpected bills.”
5. Investing for Long-Term Growth — After the Basics Are Covered
Once debt is manageable and emergency savings are in place, smart pre-retirees understand that investing all or part of a tax refund can help build future income streams.
This can include maximizing employer 401(k) matches first, then utilizing health savings accounts (HSAs) for those eligible. “HSAs offer triple tax advantages and can function as retirement accounts after age 65,” Krueger said.
6. Using a Refund To Reduce Future Financial Pressure
Another smart move is using a refund to eliminate or reduce recurring expenses.
“You have to be a futuristic custodian of your personal wealth so that your living is sustainable,” Silver said.
He shared a real-world outcome: “I witnessed clients saving thousands after they are prescient with their one-time windfalls and the IRS has not even come knocking.”
7. Reducing the Conditions for a Refund
A tax refund means giving the IRS an interest-free loan throughout the year. Krueger advised adjusting your tax withholdings to receive smaller refunds and invest those amounts throughout the year instead.
“Dollar-cost averaging often produces better results than lump-sum investing,” Krueger added.
8. Optional: Allocating a Small Portion for Intentional Spending
While smart pre-retirees are focusing on long-term wealth, Torres said that enjoying your money “is part of a healthy plan.” He advised picking one thing that feels worth a small spend. “Decide on the amount first so the fun doesn’t come with regret later,” he added.
This approach helps pre-retirees stay motivated while still prioritizing their financial future.
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