9 Ideas For Investing Your Tax Refund

Tax season is here, and for many, that means a tax refund is on the way. While it’s nice to get a check from the government, you might want to take a step back and think about why you’re getting that refund in the first place.

Some people like the idea of a refund because it feels like a nice bonus at the end of the year, but in reality, it’s not the best use of your money. After all, it’s essentially an interest-free loan you’ve given to the government.

If you’re always getting a refund, it might be time to take a closer look at your withholding and consider adjusting it so that you can have more money throughout the year instead of waiting for a refund.

But if you’ve already filed and are expecting a refund this year, you can still make the most of that money. In this blog, I’m going to cover 9 smart suggestions for what you can do with your tax refund to make it work harder for you.

If you prefer to learn in video format. Make sure to check out my YouTube channel! Don’t forget to subscribe!

1. Save for Next Year’s Taxes

If you anticipate your taxes will go up in the coming year, or if you’re self-employed or your income fluctuates (like earning commissions), it’s a good idea to set that money aside for next year’s taxes.

Consider parking it in a short-term CD (certificate of deposit) or a money market account. These options will give you a bit of interest while keeping the money safe for when tax season rolls around again.

2. Increase Your Savings

Do you have an emergency fund? If you’re lacking one, a tax refund is a great opportunity to build it up.

You should aim for an emergency fund that can cover three to six months of living expenses. To do this, consider putting the money into a short-term CD, a high-yield savings account, or a money market account.

If you’d rather have more flexibility, you can also explore high-yield savings accounts. Websites like Bankrate.com are great for comparing rates and finding the best options out there.

3. Pay Down High-Interest Debt

Carrying high-interest debt, like credit cards or private student loans, can be financially draining.

If you're paying more than 10% interest, it’s a smart move to focus on paying that debt off as soon as possible. Why 10%? Because it’s difficult to earn more than 10% in the stock market over the long term.

By paying off high-interest debt, you're effectively making an investment that will give you a guaranteed return in terms of saved interest.

heck out this week’s episode on: 7 Year End Tax Moves For Pre-Retirees in 2025

4. Start or Contribute to a Roth IRA

If you don’t have a Roth IRA yet, your tax refund could be the perfect way to start one. If you're eligible (based on income limits), a Roth IRA offers tax-free growth and withdrawals in retirement.

The earlier you start, the more you can potentially grow your money. And if you already have a Roth IRA, you can use the refund to contribute more toward your retirement goals.

5. Home Improvements

Are there any home improvement projects you’ve been putting off? A tax refund is a great way to fund those improvements. Whether it’s remodeling your kitchen, upgrading your bathroom, or creating a new outdoor space like a deck or patio, home improvements not only enhance your living experience but can also add value to your home when it comes time to sell. You’ll enjoy the upgrades now and potentially see a return on your investment later.

6. Increase Retirement Contributions

If you haven’t maxed out your 401(k) contributions yet for 2024, consider using your tax refund to increase your contributions for the rest of the year.

This could help you reduce your taxable income and grow your retirement savings. If you qualify for a Roth 401(k), consider shifting your contributions there. Some employers offer these plans, which allow you to contribute after-tax dollars, so you can enjoy tax-free growth in retirement.

Shipped to your door!

Available on Amazon Marketplace (click the image)

7. Plan a Trip

Life is unpredictable, and you never know what might happen in the future. If you’re healthy and able, why not use your tax refund to plan a trip?

It’s a great way to treat yourself and create lasting memories. If you’re not sure who to travel with, there are plenty of travel groups designed for solo travelers or people looking for a travel buddy.

8. Invest in Yourself

One of the best ways to make your tax refund work for you is by investing in your own personal growth.

Consider using the money to take a course that will enhance your skills or earn you a certification in your field. Whether it’s a designation for your current job or a new skill that could open doors to other opportunities, investing in your education can pay big dividends down the road.

You can often find affordable courses at local community colleges or through online platforms.

9. Buy U.S. Savings Bonds

U.S. savings bonds, particularly I bonds, can be a great way to put your tax refund to work. I bonds are tied to inflation and offer a fixed interest rate, so they can protect your money from rising prices. As of now, I bonds offer a 1.2% fixed rate and a variable rate of 1.91%, giving you a potential return of 3.11% in the first year.

You can buy up to $10,000 in I bonds per year per person, and if you want to invest more, you can use IRS Form 8888 to apply up to $5,000 of your tax refund to purchase I bonds.

Closing Thoughts

While receiving a tax refund feels nice, it’s worth considering how to put that money to better use.

Whether you choose to save for next year’s taxes, pay off high-interest debt, invest in your future, or treat yourself to a well-deserved trip, there are plenty of ways to make your tax refund work harder for you.

Instead of letting it sit in a savings account earning little to no interest, you can put it toward building your financial future and improving your life in the process.

If you have a question or topic that you’d like to have considered for a future episode/blog post, you can request it by going to www.retirewithryan.com and clicking on ask a question. 

As always, have a great day, a better week, and I look forward to talking with you on the next blog post, podcast, YouTube video, or wherever we have the pleasure of connecting!

Written by Ryan Morrissey

Founder & CEO of Morrissey Wealth Management

Host of the Retire with Ryan Podcast