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What Should You Do With That Tax Refund From Uncle Sam?

The IRS says about three in four Americans receive refunds each year and the average refund amount is around $2,900.
/ Source: NBC News
By Sharon Epperson, CNBC

The IRS says about three in four Americans receive refunds each year and the average refund amount is around $2,900. That's a lot of money that you can spend, save or invest.

Spend it wisely

If you're going to spend it, then spend it wisely. You can start by paying down expensive debt, such as credit card debt. Financial advisers universally rank getting rid of credit card debt as one of the best ways to spend your tax refund.

You could alternately spend it on any kind of maintenance project—on your home or auto repairs—that would otherwise cost you even more money down the line if you put the expense on a credit card or had to dig into savings.

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If you haven't had a health or dental checkup, now may be a good opportunity. Also, putting the money toward insurance if you don't have health, life or disability coverage can help protect your finances in the long run.

Save it for emergencies

You could also save your refund by building up emergency cash reserves. Most financial advisors recommend building enough reserves to last you six months should a crisis arise.

Consider saving it for your children. Open up a 529 plan so when it comes time to send your child off to college, the burden will be more manageable.

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There are many ways to allocate your tax refund. Just keep in mind that it is not "free money." It is your hard earned income and you'll want to put it towards improving your financial life.

Invest your tax dollars

Securing your retirement is one of the best investments you could make. Invest in yourself by increasing your contributions to your 401(k) or IRA.

If you're 50 or older, use the refund money to help fund a "catch-up" contribution if you have been unable to do so before.

If your retirement is in good shape, then invest it in your career. Maybe it's time to start that side business you've always dreamed of or take a college course or specialized training to advance your career.

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And If you don't know where to invest the refund money right now, park it in a money market account. Let it earn interest (even if it's just 1 percent) while it's just sitting there.

Your goal should be to maximize your refund by investing it in something that will give you a reliable return.

Sharon Epperson, CNBC

As CNBC's personal finance correspondent and senior commodities correspondent, Sharon Epperson reports on personal finance for the network and also covers the global energy, metals and commodities markets from the floor of the New York Mercantile Exchange.

In addition to reporting for CNBC and CNBC.com, Epperson is a regular contributor on NBC's Today and Today.comand appears frequently on NBC Nightly News, MSNBC and NBC affiliates nationwide. She also frequently reports for Public Television's "Nightly Business Report," which is now produced by CNBC.

Her book, "The Big Payoff: 8 Steps Couples Can Take to Make the Most of Their Money—and Live Richly Ever After," was a finalist for the Books for a Better Life Awards, honoring works that have "changed the lives of millions." She also was a contributing writer for "The Experts' Guide to Doing Things Faster."

Epperson's personal finance expertise has been featured in numerous publications, including USA Weekend, The Wall Street Journal, The Washington Post, The Boston Globe, Self, Essence, Ebony and Time, where she had covered business, culture, social issues and health as a correspondent prior to joining CNBC. 

She is committed to improving financial literacy, particularly in underserved communities. She has been invited to the White House to speak about financial literacy and to moderate a public meeting of the President's Advisory Council on Financial Capability at the U.S. Treasury Department. She also speaks frequently at conferences and events for local and national organizations, colleges and universities about many facets of personal finance.

Epperson has received the Vanguard Award for her distinguished career in business and personal finance reporting from the National Urban League Guild, the All-Star Award from the Association of Women in Communications and the Gracie Allen Award from the American Women in Radio and Television for a series of reports on female CEOs. She also has won awards from the New York Festivals, the New York Association of Black Journalists and the National Association of Black Journalists.

An adjunct professor at Columbia University's School of International Public Affairs for more than a decade, Epperson enjoys teaching the importance of budgeting and building long-term savings as part of her course on professional development for graduate students interested in media careers.

Epperson received her bachelor's in sociology and government from Harvard University, and a master's of international affairs degree from Columbia University. A Pittsburgh native, Epperson lives with her husband and two children in Westchester County, N.Y.