Did you receive a well-deserved end-of-year bonus? If so, you might be tempted to go on a shopping spree. While there’s no reason you can't spend some of it to celebrate your success, you might want to reserve a good portion to help improve your long-term financial health.
Here are six suggestions.
1. Put some into an emergency fund
A job loss. A new roof. Unanticipated medical bills. At some point or another, you’ll need to have access to a lot of money to help pay for unexpected expenses. Diverting some of your bonus into a money market account or fund designated specifically for emergencies can provide this ready capital. And if you don’t need it, your emergency cash can earn more interest than a typical bank savings account.
2. Pay off debt
A bonus can be a boon for paying off high-interest credit card balances.
You may also want to use it to reduce the principal owed on long-term debt such as mortgages and auto loans.
For example, if your monthly mortgage payment is $1,500 and most of that is applied to interest, you may want to pay an extra $500 per month to reduce the outstanding principal. Keep in mind that if you do this, you may need to contact your bank to make sure that extra payment is used only to reduce principal, rather than being applied to next month’s regular payment.
3. Contribute to your child’s 529 College Savings Plan
If you’re worried about your children’s future college costs, consider establishing a 529 College Savings Plan for them. While contributions are made on an after-tax basis, all earnings can be withdrawn tax-free if used to pay for qualified educational expenses.
And starting in 2026, 529 Plan withdrawals can also be used to pay for vocational school tuition and certain professional certification programs.
4. Make a Roth IRA contribution
If you’re already participating in your company’s 401(k) plan, establishing a standalone Roth IRA with some of your after-tax bonus money could move you closer toward achieving your retirement savings goals.
While you can’t deduct Roth contributions, you’ll never pay taxes or penalties on earnings or withdrawals once you’ve reached age 59½ and have held the account for at least five years.
You have until April 15, 2026 to make a 2025 Roth IRA contribution of up to $7,000 (plus up to $1,000 in catch-up contributions if you’re 50 or older). You can then contribute up to $7,500 (plus up to $1,100 in catch-up contributions) for 2026.
There are certain income restrictions that may limit your ability to contribute to a Roth IRA, so make sure you’re aware of them before you open an account.
5. Take advantage of a new tax-deductible charitable donation allowance
Starting in 2026, you and your spouse will each be able to make a tax-deductible charitable contribution of up to $1,000 even if you don’t itemize deductions.
If you do itemize, consider using some of your bonus to make larger charitable contributions during the year to potentially reduce your 2026 tax bill.
6. Make a special one-time 401(k) or HSA contribution
If you know what your bonus will be but haven’t received it yet, why not ask your benefits administrator if they can take out a certain amount as a one-time 401(k) contribution on top of your regular contributions. For 2026, you can make pre-tax or after-tax Roth 401(k) contributions of up to $24,500 (plus up to $8,000 in catch-up contributions if you’re 50 or older).
Likewise, if you have a Health Savings Account at work, you might be able to use some of your bonus for a one-time pre-tax contribution. This extra contribution will build up the reserve of money you can use to help pay for future medical expenses.
If you’ve already received your bonus, keep these strategies in mind for future payouts.
Decisions, decisions
If you need help figuring which of these strategies or others offer the potential biggest bang for your bonus bucks, consider meeting with a financial advisor.
This article was authored by Martin Baker and Jeffrey Briskin. Martin is a financial advisor and Director of Financial Planning with Canby Financial Advisors, a SEC-registered investment adviser. SEC registration does not constitute an endorsement by the SEC nor a statement about any skill or training. Martin can be reached at 508.598.1082 or mbaker@canbyfinancial.com. Jeffrey Briskin is Director of Marketing at Canby Financial Advisors.
©2026 Canby Financial Advisors.