What Will You Do with Your Tax Refund?

The average federal income tax refund in 2025, for the 2024 tax year, was $3,167 for individual income taxpayers, according to the IRS.? A tax refund isn’t a bonus—it’s simply money that was overpaid during the year and returned after filing. For those who receive one, a refund can offer a useful moment to reassess priorities and make intentional financial choices. Regardless of life stage or refund size, there are ways to use these funds to support both near-term needs and long-term goals. Consider the following suggestions.

For people starting out in their careers:

Build your emergency fund. A strong financial foundation often begins with readily accessible savings. Aim to accumulate enough to cover three to six months of living expenses. This cushion can help you navigate unexpected events—such as job loss or surprise expenses—without derailing other goals.

Reduce student loans or other debt. Applying your refund toward student loan balances or other high-interest debt can help reduce the amount of interest you pay over time. Once those payments are eliminated, redirect the amount you were paying each month to a new savings or investment goal to keep your financial momentum going.

Consider investing in an IRA. Using your tax refund to contribute to an individual retirement account (IRA) can help you take advantage of tax-deferred or potentially tax-free earnings. While annual contribution limits apply ($7,500 annual limit for 2026), consistently investing your refund each year can add up over time. A financial professional can help you determine which type of IRA aligns best with your situation.

For those with young families:

Start or add to a college savings fund. With education expenses continuing to rise, starting early can make a meaningful difference. Certain college savings vehicles offer tax benefits, so consult your financial and tax advisors to select the strategy that fits your family’s needs.

Advance your investment goals. Consider adding your refund to your existing investment portfolio to accelerate progress toward long-term goals. Depending on your timeline, goals, and risk tolerance, your refund could help you purchase stocks, bonds, mutual funds, or other eligible investments.

Create or update your legacy plan. If you haven’t yet created a will, trust, or related estate documents—or if they need updating—use your refund as an incentive to take action and contact an estate attorney. Clearly documenting your wishes is an important part of protecting the people and assets you care about.

For those approaching retirement:

Boost your retirement savings. As retirement gets closer, maximizing your savings becomes increasingly important. Your refund can help you make additional contributions to an IRA or workplace retirement plan. If you’re age 50 or older, catch-up contributions may allow you to save even more. Work with your tax professional to understand what options are available to you.

Pay down your mortgage. Consider using your refund to make an extra principal payment. Reducing or eliminating housing debt before retirement can help lower your fixed expenses and increase your financial flexibility later on.

For retirees:

Contribute to a retirement goal. Whether you plan to travel or explore a hobby, directing your refund toward a retirement goal can help support your long-term financial plan.

Explore Roth IRA contributions. If you have earned income and meet IRS requirements, you may be able to contribute your refund to a Roth IRA. This account offers the potential for tax-free growth, which may be beneficial in retirement because it can enhance long-term wealth accumulation and reduce the amount you may owe in taxes later in life.

Pay health care costs. Healthcare is often one of the largest expenses in retirement. You may choose to use your refund to pay Medicare premiums, contribute to long-term care insurance premiums, or to set aside additional funds for future health-related expenses.

Review your tax withholding. If you regularly receive a large tax refund, you may want to adjust the withholding on your paycheck. Decreasing your refund may increase your monthly net pay, allowing you to allocate extra income each month to your financial goals. This strategy isn’t right for everyone. Consult with your tax professional and financial advisor before adjusting or deciding how to manage your refund.