Should I invest or save my tax refund?

Investing and saving your tax refund are both smart financial options, but the best choice for you depends on your personal situation. If you don’t have an emergency fund, for example, putting your tax refund in a high-yield savings account for this purpose could be the best move. But if you already have some emergency savings, investing allows you to put your tax refund to work for your future.

Is it better to pay off debt or invest?

It’s almost always better to pay off high-interest debt than invest. For example, if you have credit card debt at a 21% APR, it doesn’t make sense to invest in the stock market, which has historically returned about 10% annually. But if you only have low-interest debt, like mortgage debt, it can be a smarter idea to invest the money for your future.

How much of my tax refund should I invest?

Investing your tax refund can be a smart financial move, but the question of how much of your refund you should invest depends on your specific situation. For example, if you get a $3,000 tax refund but owe $1,000 on a credit card, it could be smart to pay off the credit card and invest the other $2,000.

What is the smartest thing to do with a tax refund?

The smartest thing to do with your tax refund is to use it in the way that best improves your financial well-being. Depending on your situation, this could mean using it to pay down credit card debt, build an emergency fund, or invest for your future.

Can I put my tax refund in a Roth IRA?

Yes, if you qualify to contribute to a Roth IRA, it can be an excellent way to use your tax refund. In 2026, the Roth IRA contribution limit is $7,500 ($8,500 if you’re over 50), but the ability to contribute directly depends on your income, so be sure to check the Roth IRA income limits to make sure you qualify.

How to Invest Your Tax Return in 2026

By Matthew Frankel, CFP – Updated Apr 13, 2026 at 2:34 PM EST | Fact-checked by Parker Hicks

Key Points

Average American tax refund rises to $3,521 as of March 27, 2026, an 11% increase from 2025.
Best uses of tax refunds include clearing high-interest debt and building emergency funds.
Investing in stock market, especially index funds, is generally advised for long-term wealth growth.

The average American is getting a $3,521 tax refund as of March 27, 2026, according to the IRS -- that’s over 11% more than the average 2025 refund. The One, Big, Beautiful Bill Act gave Americans new tax breaks, including eliminating most income tax on tips and overtime, allowing a deduction for certain auto loan interest, and creating a new deduction specifically for seniors. As a result, tax refunds are higher than ever.

If you’re set to receive a big tax refund, one of the smartest moves you can make is to use the money to set yourself up for a financially stronger future by investing some or all of the money you get back.

In this article, we’ll dive into some of the best ways to put your tax refund to work, including suggestions from some of The Motley Fool’s top financial planning and investing experts.

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person filling out IRS form 1040 — Source: Getty Images

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2. Build your emergency fund

Here’s another one that might not seem like an “investment” at first. But don't worry, those are coming. But let’s say you invest your tax refund in stocks, then your car gets a flat tire, and you have no savings. You’d be forced to sell the investments you just bought -- or worse, put the expense on a high-interest credit card.

Most financial planners recommend that you aim to have six months’ worth of expenses in an easily accessible place, like a savings account. This might sound like an intimidating amount of money, but you don’t need to get there right away. Even a $1,000 emergency fund will put you in a position to handle most unexpected expenses, and you’ll be in a better position than many Americans.

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Energy

Amid volatility in oil and gas markets, Motley Fool energy market analyst David Meier highlights an alternative energy company with long-term potential and a strong market position.

“Bloom Energy (BE -2.69%) has a clear path forward for lots of growth. The fuel cell designer and manufacturer continues to see demand rise within the data center markets as traditional power generation from gas turbines remains supply-constrained.”

The best way to invest in electric vehicles?

There’s more to the electric vehicle industry than companies like Tesla (TSLA +0.69%). One of our analysts believes that one of the “legacy” automakers could be the best way to invest.

John Rosevear, a senior contributing Motley Fool auto analyst and former CNBC reporter covering the future of autos, says:

“Like most auto analysts, I believe most vehicles will be electric – eventually. But ‘eventually’ could be a while. Given that, rather than an electric-vehicle start-up, I like General Motors (GM -0.60%) stock right now. This isn’t your dad’s GM: CEO Mary Barra has GM ready to surge production of EVs on short notice, while making good profits on gas-powered trucks and SUVs in the meantime. GM stock surged in 2025, but I think it still has more room to run – and you’ll collect a decent dividend along the way.”

Set up an income stream

Finally, if you’re looking to build a passive income stream -- for retirement or otherwise -- Senior Motley Fool investment analyst Matt Argersinger suggests investing in dividend stocks.

“With that refund, I’d strongly consider a small basket of dividend-paying stocks, or a low-cost dividend-focused fund with a great track record like the Schwab U.S. Dividend Equity ETF (NYSEMTK:SCHD),” he said.

“It’s not just about income,” Argersinger adds. “According to several long-term studies of the stock market, including those by Hartford Funds, Ned Davis Research, and O’Shaughnessy Asset Management, stocks that pay above-average dividend yields or grow their dividends by above-average rates have been the best-performing stocks in the long run with less volatility.”

For me personally, I would add some high-quality real estate investment trusts (REITs) to my portfolio. Thanks to persistently elevated interest rates, there are some excellent valuations and dividend yields available in the real estate sector. Rock-solid REIT Realty Income (O -1.17%) has a 5.3% dividend yield and a 30-year track record of consistent dividend increases, and data center REIT Digital Realty Trust (DLR +0.00%) has a 2.7% yield and could be a great income play on the boom in AI infrastructure.

Of course, these are just a few different examples of how to invest in the stock market, but hopefully these can be a nice starting point.

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4. Max out tax-advantaged accounts

When you invest in the stock market with any of the funds or stocks discussed in the previous section, there are two main ways to do it. You can contribute money to a taxable (standard) brokerage account, or you can contribute to a tax-advantaged account, which can help optimize your long-term wealth building potential.

Of course, there are some great reasons to use taxable brokerage accounts -- for example, you can sell stocks and withdraw money whenever you want. But tax-advantaged accounts allow your investments to grow and compound, with no taxes on dividends or capital gains each year.

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Contribution limits across different investment and retirement accounts

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Investing Your Tax Refund FAQ

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About the Author

Matt Frankel, CFP, is a contributing Motley Fool stock market analyst specializing in the real estate and financial sectors. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, Globe St, The National Desk, and other TV networks and publications for his real estate, financial, stock market, and investing expertise.

TMFMattFrankel

@MattFrankelCFP

Matt Frankel, CFP has positions in Digital Realty Trust, General Motors, Kratos Defense & Security Solutions, and Realty Income. The Motley Fool has positions in and recommends Bloom Energy, Digital Realty Trust, Kratos Defense & Security Solutions, Realty Income, Tesla, and TransDigm Group. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.

How to Invest Your Tax Return in 2026