Vivian Tu: Why Getting a Big Tax Refund Isn't the Flex You Think It Is
For many people, one of the rare pleasures of tax season is the moment that sweet refund money hits their account. Some even plan their withholdings to get a refund, so they can enjoy a little — or not so little — windfall. Sounds like a smart strategy, right?
Vivian Tu, founder and CEO of Your Rich BFF and author of "Well Endowed: The Secrets to Strategic Spending, Building a Financial Foundation for You and Your Family, and Creating Lasting Generational Wealth," doesn’t think so. She opened a recent video with a blunt message: “Friendly reminder — you don’t want a big tax refund.”
Why would a financial expert be against “free money” from Uncle Sam? Tu explains why a big refund isn’t the flex you might think it is.
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A Tax Refund Isn’t Free Money
In the video, Tu plays two characters. One is a typical tax filer who greets news of her hefty refund with a giant “woo-hoo!” The other is proudly practical and aims to get her tax refund as close to zero as possible.
When the happy refund recipient wonders why anyone wouldn’t want “free money,” Tu explains that the money is anything but free.
“It’s not free money — it’s your money that you’re getting back late,” she said. “You essentially just gave the U.S. government an interest-free loan for a full year. I got to keep my money in my pocket.”
She’s not the only expert who feels this way. In a write-up, Northwestern Mutual has also warned that planning for a large refund is unwise. Writer James Klaffer, CPA, notes that it allows the government to pay back a loan of your own money — without interest.
“It’s not the smartest financial plan, especially if you’re lugging around credit card debt, student loans or any other kind of debt,” he said. “Instead of loaning that money to the government, you could be making that money work for you.”
Make Your Money Work for You Instead
Tu’s pragmatic character explains that instead of getting a refund, she kept her money in her own pocket — and put it to work by investing it. She uses a hypothetical refund of $1,500 to prove her point.
“Over the past 12 months, I made 16%, meaning my $1,500 turned into closer to $1,740,” she said.
Of course, investment returns aren’t guaranteed, and markets can fluctuate from year to year. But Tu’s broader point is about opportunity cost. Investing the money you’d otherwise send to Uncle Sam can be smart. But you could also use it to build your emergency fund or pay down debt, especially high-interest credit card balances.
Klaffer also suggests giving your retirement accounts a boost.
“What if, instead of waiting for the IRS to refund you your overpayments, you bumped up your 401(k) contributions by a percentage point or two?” he wrote. “Over several decades, that change could earn you a more comfortable existence in retirement.”
Sure, you could put your tax refund into your 401(k). But by waiting, you lose out on roughly a year of potential growth. So don’t wait.
Reducing Your Refund Isn’t Hard
Now convinced her pal had the right idea, the refund fan asks how she pulled it off.
“Oh, I just adjusted my W-4 withholdings,” Tu said. “You can go into your employee portal, update the form and submit it to your payroll department.”
She does offer a word of caution: Don’t overcorrect. “Owing a big tax bill isn’t that fun either,” she said.
To avoid overpaying, a tax professional can help you fine-tune your withholding. Klaffer also recommends using the IRS Withholding Estimator, though you’ll need your most recent tax return and a current pay stub to use it accurately.
The Bottom Line
Watching a nice sum hit your bank account can be thrilling. But a big tax refund isn’t the flex it’s cracked up to be. Instead of loaning your money to Uncle Sam and getting it back interest-free, you’re better off putting it to work for yourself — just ask your Rich BFF.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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