Ways to save (and not spend) your tax refund

More than 70 percent of taxpayers are expected to receive refunds this year, the Internal Revenue Service reported. Last year, the average refund was nearly $2,900 — a significant amount of money for many people.

"For a lot of families, it's the biggest financial event of the year," said Timothy Flacke, of Commonwealth, a nonprofit in Boston.

There is some indication that more people are focusing on saving at least part of their tax refund. In a Bankrate survey, more than a third said they would save or invest their refund this year. Millennials in particular were more likely to say they would save their refund.

Research from the Pew Charitable Trusts in 2015 found that 41 percent of households said they could not cover an unexpected expense of $2,000. And last year, the Federal Reserve reported that nearly half of American families would struggle to meet an emergency expense of even $400.

Saving is particularly challenging for families whose income fluctuates widely, new research from Pew finds.

"Families have very little liquid savings," said Erin Currier, director of Pew's financial security and mobility project.

Tax refunds can offer a chance for people to save, whether by establishing a rainy-day fund or setting up a retirement account, said Flacke of Commonwealth (which was formerly known as the D2D Fund). Getting a large chunk of your annual income as a lump sum "is a big deal," he said.

Acting before you have the cash in hand can help make sure you save some of the refund. One option, Flacke noted, is to receive your refund by direct deposit, and have the IRS divide the money into separate accounts — say, half to a savings account and half to your checking account.

Flacke also said consumers might consider buying savings bonds with their refunds. Tax time is the only remaining opportunity for people to purchase paper savings bonds; otherwise, consumers must buy digital savings bonds from the federal government.

One way to force yourself to save, said Robert Steen, a certified financial planner with USAA, is to get in the habit of talking with friends and family about your goal, whether in person or on social media.

"If you share it," he said, "it becomes more real."

Here are some questions and answers about using tax refunds to begin saving:

Q: How can I split my tax refund?

A: To do this, file Form 8888 with your tax return. The form lets you divide the money among as many as three accounts.

Q: How do I buy savings bonds with my tax refund?

A: To buy savings bonds, you will also need to file Form 8888 and indicate that you want to purchase bonds with all or part of your refund. This year, taxpayers can buy up to $5,000 in I-series U.S. Savings Bonds, which pay a flat interest rate and an additional rate based on inflation.

Q: What if my refund is very large?

A: An outsize refund means that you have missed out on the chance to earn interest on that money. To reduce the amount of your refund, you will need to decrease the amount withheld from your paycheck. You can do this by filling out a revised W-4 form and giving it to your employer.

Ann Carrns writes for the New York Times.