The Best Ways To Spend Your Tax Refund for Maximum Financial Impact in 2025
Written by
Josephine Nesbit
Edited by
Jenna Klaverweiden
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For many Americans, a tax refund is the biggest financial boost they receive all year. While it might be tempting to splurge on something fun, there are smarter ways to make that money work for you.
As of March 21, 2025, the average refund stands at $3,221, according to the IRS, which can make a big financial impact if you use it wisely. Let’s break down some of the best ways to spend your tax refund in 2025.
Pay Off Debt
About 1 in 3 Americans (33%) plan to use their tax refund to pay down debt, according to the National Retail Federation’s 2025 Tax Returns Survey.
As of the third quarter of 2024, TransUnion reported that the average credit card debt in the U.S. was $6,380 per borrower. And the average credit card interest rate is 23.37% as of the same quarter, per The Motley Fool.
Using your tax refund to pay down debt could save you a substantial amount on interest and help get you out of a debt cycle.
Grow Your Nest Egg
If you don’t have credit card debt, another option that could make a big financial impact is to contribute to your retirement accounts. The maximum contribution for a 401(k) in 2025 is $23,500 — up from $23,000 in 2024 — while the IRA limit remains $7,000, according to the IRS.
Traditional IRA contributions may also be tax-deductible. The IRS stated that the deduction may be limited if a retirement plan at work covers you or your spouse or your income exceeds certain levels.
Invest In a Home
Put your tax refund in a high-yield savings account and save for a down payment on a home. Alternatively, you could invest your tax refund in home improvements if you’re already a homeowner.
According to Zonda Home’s 2024 Cost vs. Value report, curb appeal drives the most value for home improvement projects. For example, the report found that homeowners could see a 194% return on investment (ROI) with a garage door replacement, a 188% ROI on a steel door replacement and a 153% ROI on manufactured stone veneer updates.
Invest In Your Family
You could also consider putting your tax refund toward your children’s education. The average cost of college in the U.S. is $38,270 per student per year as of 2025, including books, supplies and living expenses, per the Education Data Initiative. Parents can invest their tax refunds in a 529 college savings plan to save for their children’s education and grow earnings tax-free. Withdrawals are also tax-free as long as they’re used for educational purposes.
Parents can also take advantage of the annual gift tax exemption, which allows taxpayers to gift a certain amount of money each year tax-free. The limit is $18,000 per recipient for 2024 and $19,000 for 2025.
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