Updated for tax year 2024.
Got a big tax refund this tax season? You’re not alone. Many American taxpayers see their tax return as a once-a-year financial boost — and how you use that refund money can have a big impact on your financial future.
Whether you’re looking to save, invest, or knock out some high-interest debt, here are six smart ways to put your income tax refund to work this year.
1. Build your savings account or emergency fund.
Sure, it’s not flashy — but socking away your tax refund in a savings account or emergency fund is often one of the most solid financial moves you can make.
Why it’s smart:
- An emergency fund helps protect you from financial surprises, such as job loss, medical bills, or home repairs.
- Most personal finance pros recommend saving at least three to six months’ worth of living expenses.
- A high-yield savings account or certificate of deposit (CD) can have high interest rates and potentially grow your money faster than a standard savings or checking account.
If you’re eligible, consider putting some of your refund into a health savings account (HSA). HSAs are tax-free savings plans for medical expenses like copays, prescriptions, and qualified over-the-counter items. They’re also FDIC-insured and can roll over year to year — no “use it or lose it” rule here.
Tax Tip: Emergency savings matter more than ever during uncertain economic times. This is a chance to take your refund and create a buffer between you and the unexpected.
2. Pay down high-interest debt.
If you’re juggling credit card debt, car loans, or student loans, putting your refund toward those balances can seriously pay off in the long run.
Tips to focus on:
- Paying off the balance with the highest interest rate first — this will save you the most in the long run.
- Avoiding compounding interest that snowballs month after month.
- Freeing up money for future financial goals (and peace of mind).
High-interest debt can really eat away at your income, so using a windfall like a tax refund to wipe out even a chunk of it can be a game changer.
3. Boost your retirement savings.
Why not give your future self a gift and use your refund to add to your retirement plan? Contributing to a pre-tax retirement account, like an individual retirement account (IRA), may even earn you a tax break next year.
You have a few options here:
- Traditional IRA: Contributions may be tax-deductible, depending on your income.
- Roth IRA: Contributions are made with after-tax dollars, but your withdrawals in retirement are tax-free.
- IRA contributions can be made up until the tax filing deadline for the previous tax year.
Don’t forget about contribution limits, though! If you exceed the annual IRA contribution limit, you may have to pay double the taxes. You have until the tax filing deadline to make contributions for that tax year.
Not sure which one’s right for your financial situation? A tax professional or financial planner can help you decide based on your income and goals.
Tax Tip: If you’re already contributing to a 401(k) through your job, you can’t deposit refund money directly — but you can use that cash to cover daily expenses and then bump up your paycheck contributions instead.
4. Grow your investment portfolio.
Ready to explore other ways to invest your tax refund? Consider putting your money to work in the market.
Popular investment options include:
- Brokerage accounts with mutual funds, ETFs (exchange-traded funds), or stocks
- Bonds, for lower-risk, steady returns
- Crypto, for those with a higher risk tolerance
- Precious metals like gold or silver coins
Before you dive in, keep in mind that investing can trigger tax implications. You may need to report capital gains, dividends, or interest on your next year’s tax return. To help you with this, TaxAct has some helpful calculators to estimate what that might look like:
As always, if you’re not sure where to start, consider seeking out investment advice from a trusted financial advisor.
5. Invest in education.
If you’ve got kids — or nieces, nephews, or future college students in your life — your refund could help them (and you!) in the long run.
One of the most tax-efficient ways to save for education is through a 529 plan.
What you can use 529 funds for:
- College tuition
- K-12 public, private, or religious school tuition
- Books and supplies
- Room and board
As long as the withdrawals go toward qualified educational expenses, your earnings grow and are withdrawn tax-free.
6. Give a tax-free gift.
Feeling financially solid? You can also use your tax refund to help someone else reach their goals and likely avoid extra taxes in the process.
In 2025, the IRS allows you to gift up to $19,000 per person without triggering the gift tax (up from $18,000 in 2024). This could go toward:
- Helping a loved one with a down payment on a home (or a home improvement project)
- Funding a grandchild’s savings plan
- Donating to a cause you care about
If your gift exceeds the $19,000 annual threshold, you’ll need to file a gift tax return next year using IRS Form 709. However, as long as your total gifts fall under the lifetime exemption (which is in the millions), you likely won’t owe tax on the gift.
The bottom line
If your immediate needs are covered, your tax refund can become a powerful tool for financial planning. From building emergency savings to tackling credit card debt, funding an IRA, or helping a loved one with college savings, there’s no shortage of smart ways to put that money to work.
Want to adjust your refund amount for next year? Try TaxAct’s Refund Booster1 to explore how life changes, tax credits, or withholdings might affect your refund money.
And if you’re curious about how your financial decisions impact your taxes, our full tax refund guide is a great place to start!
