Expecting a Tax Refund? 6 Expert-Approved Ways to Use Your IRS Money This Year

We're well into tax season and if you haven't filed your taxes or plan to soon, you might be figuring out the best way to use your tax refund. 

Last year, the average tax refund was $3,050, according to the IRS, an amount that could help you reach your financial goals faster. With worries about tariffs and the overall labor market rising, you might want to use your refund to help stretch your budget a little further. 

"First, ensure you have a fully funded emergency fund and secondly pay down as much as much consumer debt as possible," said Alaina Fingal, an accountant and certified financial coach. "I know there is an urge to have fun with a refund, but preparing for anything that could come up in the near future is the best option."

You may need to use all or part of your refund to pay for essentials like food, gas, bills or your house payment. If you have any money leftover, you still still put the rest to work for you. Here are six ways expert-approved ways to use your tax refund this year.

1. Pay down high-interest debt

Interest rates have been high for years, after 11 rate hikes from the Federal Reserve from 2022 to 2023. Although the Fed cut rates three times last year, experts don't expect another cut until the end of 2025. This means your debt will continue to accrue high interest.
Right now, the average credit card annual percentage rate is currently over 20%. If you can put your refund towards any outstanding credit card debt, it can help you save big on interest payments.

"Pay down as much as much consumer debt as possible," Fingal said.

Credit cards tend to be the debt with the highest interest rates. Paying down the debt with the highest interest rate first (aka the avalanche method) can help you save money in interest charges. If you have multiple credit cards with similar APRs carrying debt, you could also opt to pay down the smallest balances first (the snowball method) so you have fewer remaining credit cards to worry about paying off.

2. Build or pad your emergency fund

An emergency fund is an important financial tool that can help you in the event of a job loss, salary decrease or unexpected financial emergency (like a hefty medical bill). Your emergency fund should ideally contain three to six months' worth of expenses, which is the amount you spend on things like rent, utilities, groceries, gas and other essentials.

Fingal agrees that padding your emergency fund is important, especially if you're worried about possible layoffs or price increases this year. If you don't already have an emergency fund, your tax refund can help you get started. A high-yield savings account that earns slightly higher interest rates that you can access quickly is a great place to store this money. 

Many online banks like Capital One, Ally and Marcus offer high-yield savings options with savings interest rates well over 4% APY. You might also consider investing in a short-term certificate of deposit, to lock in a higher-yield, if you're comfortable not having access to your money during the CD term.

You can work on this goal in tandem with paying down high-interest debt. Even a few hundred dollars stored away can help if an unexpected expense pops up.

3. Pay your future self

It may not be the most glamorous way to enjoy your money now, but investing in your future is important at any stage of your career. You can use your tax refund to contribute to any retirement plans you have, whether 401(k)s or IRAs. In 2025, you can contribute up to $23,500 to a 401(k) and $7,000 for traditional and Roth IRAs. (If you're over 50, you can contribute an extra $7,500 to your 401(k) and $1,000 to an IRA.) 

If you can't max out your workplace retirement plan, try to invest enough to earn your employer's full match. Or, if you can, focus on contributing more than you did the year before to set up good investing habits.

Lastly, you could consider investing your refund in the market. There's no one way to begin investing; it will look different for everyone. If you'd like to invest with minimal risk, purchasing an exchange-traded fund or index fund might make sense. Both options spread out your risk across different stocks and bonds that track a particular index, like the S&P 500. You won't get rich overnight with index funds or ETFs. They're more of a long-term play. 

If you want to take a more active role in investing and don't mind taking on higher risk, you could invest directly in the stock market through a brokerage. For those who don't want to be as active in the investing process, a robo-advisor might make sense. Robo-advisors like Betterment, Wealthfront and Ellevest use AI to create a portfolio based on your financial needs and goals.

4. Contribute to your HSA or FSA

A health savings account is a savings plan specifically designed for health-related costs. HSAs are a type of investment account, even though they're called "savings" plans. If you have a high-deductible health plan, you're eligible to open an HSA. HSAs are triple tax-free: Your contributions, earnings and withdrawals aren't taxed. Your employer may also offer access to a flexible spending account, which is also a tax-free account for qualifying medical expenses.

If you have a health savings account or flexible savings account, you might want to use some of your tax return to fund it. The contribution limits for 2025 for an HSA are $4,300 for an individual and $8,550 for family plans. The FSA contributions limit for 2025 is $3,300. 

5. Save for college

Whether it's for a child or yourself, you can put your refund to work by investing it for future college expenses. You have different options for storing this money, including a high-yield savings account, an investment account or a 529 plan.

A 529 plan is specifically made for college savings, but it acts more like an investment account. Earnings grow tax-free and as long as you use the funds for education-related costs, you're not on the hook to pay taxes on your withdrawals. 

You can also now roll over funds in 529 plans to Roth IRAs, if you don't spend the money on education.

6. Invest in your goals and experiences

While college is a great self-investment, there are other ways you can use your tax refund for a good cause. If you've been contemplating a career change or side hustle, use your money to invest in that switch. If you need capital to start your own business, this could be your chance. Or use your funds to invest in classes, courses or certifications that will help take your skills to the next level.

And don't overlook the importance of mental health. If you're overdue for time away, you could put a portion of your funds toward a much-needed vacation. With travel costs continuing to rise, your refund could help you better afford a weekend trip.