If you’re one of many Americans who can’t wait for tax time to arrive so that you can get your tax refund to work, you’re in for a bit of a rude awakening. Undoubtedly, getting a tax refund certainly feels like getting “free cash” courtesy of the government. However, Suze Orman has made it loud and clear that it’s not at all free money. In fact, it’s your hard-earned money you’ve pretty much loaned to the government interest-free.

Indeed, this knowledge may put some dark storm clouds over the next tax season. But, at the very least, you’ll probably feel somewhat less tempted to splurge your next tax refund as though the cash was just handed to you like some sort of Christmas gift. Further, you may be able to notify your employer that you’re overpaying in taxes and they may be able to make the adjustments to slightly fatten up your monthly paycheck.

Of course, doing so may run the risk of underpaying taxes in any given year, especially if you’re rewarded a lofty year-end bonus. And anything you owe to the Internal Revenue Service is going to come with interest! Either way, I think it’s far better to overpay on taxes and get a refund a year or less later than underpay and have an unpleasant surprise (what you owe plus interest) waiting for you in the new year.

Personally, I don’t think overpaying taxes in any given year is all too big a deal, provided you’re not receiving a significant sum come tax return time. If you’re getting too much back (let’s say a few grand) and are barely scraping by, you’ll probably need to bring it up with your employer as you may be severely overpaying on the taxes.

Tax refunds mean you overpaid on your taxes for the year. It’s not something to celebrate!

In any case, I think the big takeaway from Suze is to stop treating tax refunds as a win. It’s not like getting a bonus from the government. Technically, it’s a loss on your part for overpaying taxes. The good news, though, is it’s not a huge loss. And if you save and invest your tax refund responsibility, I’d argue that the lost interest on the sum isn’t worth losing sleep over. In fact, it may be the price you pay for forced saving!

Suze Orman thinks you should prioritize stashing extra cash in a Roth IRA, which Suze emphasizes is “tax-free” instead of “tax-deferred” like with a 401k. I think she’s right on the money. Your tax refund “windfall” isn’t a windfall at all. You’re just getting money back on an interest-free loan you’ve provided.

After all, that’s why it’s called a tax “refund.” And if you’ve managed to make ends meet with excessive deductions from every payday, I’d argue that topping up the Roth IRA (and then 401k if you’ve maxed it out) is the right way to go.

The bottom line

I’ll admit it: getting an unexpected three- or four-figure check out of the blue is a nice feeling, even if you know it means you overpaid on taxes last year. In any case, it can be pretty perplexing at first to view getting some cash back as a bad thing. Though paying too much taxes with every paycheck is not ideal, I’d argue that it’s better to overpay than underpay and set yourself up for a debt (with interest) owed to the government.

Since it can be difficult to adjust things such that your refund amounts to zero for the year, I’d argue that a small tax refund is not worth worrying about unless your monthly budget is tight or your refund is especially fat! Suze Orman thinks you should make the most of the less-than-ideal situation by stashing away your next refund in your Roth IRA if there’s room. It’s the smart thing to do.

Just remember that tax refunds are, in fact, called refunds for a reason — because you’ve overpaid on taxes! And since it’s your own money, you should invest it as such rather than celebrating the financial gift (that’s not actually a gift!) and blowing the cash on some totally unnecessary impulse purchase! To those folks, I stand with Suze when she asks, “What are you thinking?!”

If you’re unsure where to invest or save your tax refund, do reach out to a professional advisor to help point you in the right direction.

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