Receiving an unexpected sum of money can be a welcome surprise, but deciding what to do with it can be a challenge. Should you save the money or pay down debt? Invest the funds or donate to charity?

While rushing to book a vacation with proceeds from a windfall may be tempting, it might be more rewarding to use the funds to shore up your finances for the long run. Here are five strategies to consider:

Grow your emergency fund

A robust emergency fund provides security for financial emergencies. Even if you feel confident about your emergency savings, padding your fund with some of your windfall money can further prepare you for financial curve balls, especially in an uncertain economy.

Save for retirement

Adding a windfall to a tax-advantaged retirement account can be a powerful way to potentially grow that extra money over time. If you have a 401(k) through an employer, you won’t be able to contribute a lump sum to that account, but you can open a traditional or Roth IRA and fund it with your windfall. The 2024 contribution limit for either type of IRA is $7,000 for people younger than 50 and $7,500 for those older than 50.¹

Invest for the future

If you’ve maxed out your tax-advantaged investment options, investing through a taxable brokerage account may be the next best way to turn a lump sum of cash into long-term wealth. A financial planner can help determine how to invest to complement your tax-deferred portfolio to help you achieve long-term financial goals.

Prepay your mortgage

A windfall can make a big impact on your mortgage, depending on how much you owe. If you are considering this choice, be sure to ask your lender to put the windfall toward paying down your loan principal, which will reduce your interest payments long-term.

Before prepaying debt, consider opportunity cost, the idea that money used for one purpose can’t be used for another. Paying down debt could make the most sense if interest payments on the debt are higher than expected returns from your investment portfolio, for example.

Donate to charity

Contributing to causes you care about is a simple way to put your values into action and do good in your community while also reducing your tax liability. In most cases, you can deduct up to 60% of cash contributions to public charities, including donor-advised funds.²

Choosing the best option for you

The best use of a windfall depends on your individual circumstances. If you’ve already maxed out your retirement accounts, paying down your mortgages or donating to charity to reduce taxable income may be a better fit. You can also split a windfall among several options to maximize your advantages.

Additionally, before you spend any of your windfall, you’ll need to determine if you owe taxes on it. Cash gifts under $18,000 from individuals are generally not taxed,³ but other lump sums you may receive, like a bonus from work or lottery winnings do count as income and you’ll be taxed accordingly.

Determining the best use of a windfall can be challenging, especially if you feel pulled in multiple directions. Work with a financial professional, like the team at Emerj360, to figure out the best course of action as part of a long-term wealth management plan.


¹ “401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000.” Internal Revenue Service, 1 Nov. 2023,

² “Charitable Contribution Deductions.” Internal Revenue Service, 25 Aug. 2022,

³ “Frequently Asked Questions on Gift Taxes.” Internal Revenue Service, 27 Oct. 2022,,exclusion%20for%20the%20calendar%20year.

Written By  Heather Jordan
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