Getting a Tax Refund? 6 Ways to Use Your IRS Money This Year

First, cover any essential needs and high-interest debt payments. Then, you've got options.

Courtney Johnston Senior Editor
Courtney Johnston is a senior editor leading the CNET Money team. Passionate about financial literacy and inclusion, she has a decade of experience as a freelance journalist covering policy, financial news, real estate and investing. A New Jersey native, she graduated with an M.A. in English Literature and Professional Writing from the University of Indianapolis, where she also worked as a graduate writing instructor.
Expertise Taxes, student loans, credit cards, banking, mortgages, investing, insurance
Courtney Johnston
5 min read
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The money from your tax refund could be used to boost your financial health. 

Zooey Liao/CNET

You've filed your taxes and now you're waiting on your refund to arrive. The IRS has already issued more than 7.4 million refunds this year, and if you're owed a refund, the IRS is anticipating you'll receive it within 21 days -- if you're getting it via direct deposit.

So far, the average refund clocks in at around $1,741, according to the IRS, an amount that can help you reach your financial goals faster. With inflation still above the Federal Reserve's target and high interest rates making debt more expensive, your refund could help you stretch your budget a little bit further. 

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Whether you're counting down the seconds until your tax refund shows up or it's sitting untouched in your bank account, here are six ways to put your tax refund to work for you. 

1. Pay down high-interest debt

After 11 rate hikes throughout 2022 and 2023, interest rates are sitting at record highs. That means carrying an outstanding balance on any account with a variable interest rate is likely costing you more in interest payments.

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.

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.

Your tax refund can help you get started on building an emergency fund. 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 2024, you can contribute up to $23,000 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. A few online options for investing in ETFs, index funds and stocks include TD Ameritrade, E-Trade and Fidelity Investments.

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 2024 for an HSA are $4,150 for an individual and $8,300 for family plans. The FSA contributions limit for 2024 is $3,200. 

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. 

Starting in 2024, you'll be able to 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.

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