5 Ways To Invest Your Tax Refund and Multiply Its Value
Written by
Angela Mae
Edited by
Amber Barkley
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
The average tax refund was $3,050 last year, per IRS data. Whether you receive more or less, try to resist the temptation to spend it.
Instead, you might find investing it in stocks, retirement accounts and other financial instruments is a better way to build wealth. As for which option to choose, here’s what the experts say.
Yourself
One option is to invest in yourself — learn a skill, get a certification or go on a retreat.
“Investing in your healing past traumas or wounds can give you the confidence boost and clarity to pursue [income]-producing activities and really make a difference to your life and those you share it with,” said Janeil Pierre, accredited financial counselor, board certified credit consultant and coach at JaneilPierre.com. “It might be a course, a retreat or going back to school, but whatever it is, investing in yourself is a smart move.”
You can spend your refund on a new trade. Or if you’re hoping to get a promotion, you can instead use it to expand your knowledge or skills related to your industry.
Retirement
According to the Federal Reserve’s latest data, the average American has between $49,130– those under 35 years old — and $609,230 — those 65 to 75 years old — in retirement savings, as of 2022.
One way to boost those retirement savings is with a 401(k) — if your employer offers one — or an individual retirement account (IRA). These accounts offer many benefits, but it depends on the account type.
- Traditional IRAs offer fully or partially deductible contributions. Your money also grows tax-free.
- Roth IRAs allow tax-free distributions once you’re 59 1/2 or older. You can also choose to keep the money where it is, so it continues to grow for your beneficiaries.
- 401(k)s are also tax-advantaged. Your contributions come out of your paycheck, which reduces your taxable income. You pay income tax on distributions when you retire.
“People should look into investing in retirement, if they can, with their tax refund because of additional tax breaks in retirement accounts,” said John Adams, CPA and tax planning expert at Bridgewater Tax and Financial Consulting.
Note that retirement accounts have annual contribution limits. For 2025, you can contribute up to $7,000 — $8,000 if you’re 50 or older — to your IRA. If you receive a $3,000 tax refund, that’s nearly half.
Existing Debts
Paying off your debts won’t increase your current wealth, but it will free up money for future investing.
“Investing your tax refund is always a wise idea,” said Adams. “However, if you have more pressing issues to take care of, such as paying high-interest credit cards or medical bills, you should take care of those first.”
You can also split your tax refund. For example, you can put 20% toward debts and 80% toward retirement, index funds or self-improvement courses that improve your hireability or get you a raise.
Your Home
Are you selling your property? Sometimes, even making a few cosmetic updates can increase the property value. With a tax refund, you could update your home and get higher bids.
Say you spend your refund on replacing your garage door. The average recouped cost is over 190%, according to Remodeling’s 2024 Cost vs. Value Report.
Stocks
In the past 10 years, the average stock market return has been 10.8%. Investing your tax refund in stocks could lead to some high returns.
For example, say you invest the full $3,000 refund into the stock market today. If you don’t touch it and the return rate remains the same, you’ll have $8,366 after a decade. That might seem like a long time, but you could multiply your wealth exponentially by continuing to invest over time.
More From GOBankingRates
