Yet, when used wisely, such a refund can play a substantial role in helping American’s shore up their finances. For advisors, therefore, the tax refund season is an attractive opportunity to strengthen client relationships by providing counseling on how to use refunds for financial planning purposes.

By encouraging clients to invest their refunds, furthermore, advisors can increase their assets under management. When considering the aggregate result of having numerous clients invest their refunds each year, the lump sum payments can be a substantial amount.

Even if individuals use their refunds for other responsible goals, such as paying down debt, providing recommendations on the use of a lump sum payment can help position advisors as financial experts.

Here are a few examples of strategies that advisors can use to help their clients with their tax refunds.

Pay Down Debt

Advisors should advise clients with high credit card balances to consider using their refunds to pay down their outstanding debt. To strengthen the value of the advice, advisors should provide calculations that show clients how much they will pay in interest if they don’t use their refunds for paying down the debt.

Many clients will be surprised to learn how much delaying debt payments will cost in interest payments. Showing a hard number depicting the cost may motivate individuals to take appropriate actions.

Build an Emergency Fund

Clients who don’t have large credit card balances but lack emergency funds should consider stashing the money away as a rainy day account. With this in mind, advisors can tell their clients that they should have the equivalent of three to six months of cash set aside for use in the event of unemployment or unexpected emergencies.

In the process, advisors should point out that the emergency fund can help clients avoid the costly mistake of having to liquidate savings in qualified retirement accounts when emergencies occur. It may also be helpful to make an estimate of the cost in tax penalties that clients could face by withdrawing assets from their retirement accounts.

In a similar manner, advisors should explain that being forced to liquidate long-term assets during market dips can result in clients realizing losses that could have been avoided by riding out market turbulence.

Contribute to Individual Retirement Accounts

Clients may also want to consider contributing their refunds to individual retirement accounts. Or, they can use the money to offset increasing their income deferrals to their employers’ group retirement plans.

Once again, this advice should be supplemented with scenarios that illustrate how investing tax refunds each year can help clients reach their long-term savings goals.

Update Withholdings Rates

Advisors should also recommend that clients who receive large refunds decrease their withholding rates.

As part of this strategy, clients should increase their group retirement plan contribution rates by the same amount that they are decreasing their withholdings. When presenting this suggestion, advisors should provide models that compare contributing the additional money to a group retirement plan on a regular basis and making lump sum contributions to a retirement account after receiving a tax refund.

Over the years, making the routine payments is likely to result in substantially higher savings than delaying the payment until the end of a year. By not having to wait until the end of the year for a lump sum payment, investors making routine payments will increase the amount of time that their assets have to grow.