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Andrea Manzati for Money

So you've come into some money. Maybe your tax refund is fatter than usual this year, or you received a modest inheritance or a bonus at work. After you do your happy dance, break out the calculator. While your first impulse might be to spend your good fortune, financial advisors say an unexpected infusion of cash can shore up your finances if you take advantage of it.

The best way to use found money will depend a lot on your current financial situation and long-term goals. (Whatever you do, don't be tempted by H&R Block's offer to increase your tax refund if you put it onto an Amazon gift card.)

Here's a priority list to consider:

Get rid of “bad debt”

Consumer credit normally carries a higher interest rate than so-called "good debt" like your mortgage. "Not only do you get no tax breaks on what you owe the credit card company, but the interest that you pay compounds,” says Debra Neiman, principal of Neiman & Associates Financial Services in Arlington, Mass.

If you have high-interest debt, knocking that out should be a priority over funneling your bonus cash into an investment account. Although the stock market has notched outsized gains over the past decade, Neiman says it’s risky to assume the market returns you’ll earn in the future will justify paying more in interest charges.

Recent market jitters might have dampened enthusiasm for a strategy where you fund your investments to the exclusion of paying off your high-interest debt, but in case you're still tempted, know this: “Market returns this past year were just abnormal," she says. "It's not usual to have the S&P up over 30% and most asset classes up." While that return might be higher than the interest rate on your credit cards, "You can’t bank on the fact that you'll out-earn your money," Neiman says.

Start or add to your emergency fund

“The first thing I would say is if somebody doesn’t have at least three months worth of savings set aside for a rainy day fund, it needs to go straight to that,” says J.R. Stock, portfolio manager at Tenet Wealth Management in Columbia, S.C. If you’re self-employed or work in a field where your income fluctuates a lot, you should shoot for six months’ worth of expenses at a minimum.

If you have credit card debt and a dearth of savings, you might consider a divide-and-conquer strategy: Save a portion of your money in a high-interest savings account, and knock out the balance with the highest APR first so you can funnel the funds that were servicing that obligation into further debt reduction.

Contribute more money into your 401(k)

If your windfall comes as a bigger-than-expected tax refund, use it as a springboard for boosting your 401(k) balance in the future, says Jamie Cox, managing partner at Harris Financial Group in Chesterfield, Va. The 401(k) contribution limit for 2020 is $19,500 for those under age 50 (those 50+ are allowed an additional $6,500 in "catch-up" contributions).

“If you’re getting a large tax refund, your withholdings are incorrect,” he says — but this is a mistake that can pay dividends if you strategize carefully.

“Since you’ve been living without that money, that’s the perfect time to redeploy that money into your retirement plan,” he says.

This is a two-step process: Change your withholdings to their optimal level, which means you’ll have less money taken out of each paycheck. To do that, you can file a new W-4 form with your HR department. Second, increase your 401(k) contributions by a comparable amount.

“You can take this one-time item and transition it into something that creates good habits,” Cox says.

Open a Roth IRA

Roth IRAs are after-tax accounts—that is, you pay income taxes on your contribution on the way in, then you can withdraw your money tax-free in retirement. Financial advisors recommend having a mix of taxable and tax-free accounts in retirement.

“If somebody gets a little windfall and they have three to six months’ of funds set aside for emergencies, considering a Roth IRA would be really good if they qualify and if they have the time horizon,” Stock says.

This won't be an option for high-earners, though. To be allowed to contribute the maximum $6,000 to a Roth IRA, the adjusted gross income cap for 2020 is $124,000 for single filers and $196,000 for married taxpayers filing jointly. Single filers with an income of up to $139,000 and married filers with income up to $206,000 can make partial contributions.

Ideally, you'd let money in your Roth grow until you retire. But if you plan to withdraw it for any reason, remember these rules: you can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. However, you may owe taxes and penalties on any earnings you withdraw.

Remember Uncle Sam

“Some windfalls have a cost to them,” Cox says. If you inherit a traditional IRA or non-qualified annuity, for instance, you’ll have to pay taxes on that money — something he says too many beneficiaries forget until they’re confronting a whopper of a tax bill the following April.

“Taxes are the thing people trip over most often when it comes to windfalls. People inherit IRAs and just take the money,” he says.

Cox says it’s not a bad idea to avoid claiming an account like this until the following tax year, which will give you time to plan a strategy. “What you’re trying to do is ascertain the tax cost before you act,” he says.

Since Congress eliminated the stretch IRA in many cases, non-spouse beneficiaries have a window of only a decade to take distributions from an inherited IRA. If you’re in your peak earning years, this could be a painful hit at tax time. Cox suggests funding your pre-tax accounts by an amount equal to your required distribution, in order to lower your taxable income by an equivalent amount. “You can neutralize the taxation,” he says.