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.
4 of the best ways to invest your tax refund
When it comes to investing your tax refund, there are literally hundreds or even thousands of ways you can choose to do it. But the best options can be divided into four main categories.
1. Pay off high-interest debt
This one might not seem like an "investment", but hear me out. Over the long term, the stock market produces returns of 9%-10% per year, on average. While not guaranteed in any given year, some of the best investors can consistently manage returns in the 12%-14% ballpark. So, if you invest in stocks, mutual funds, or ETFs while you have credit card debt at 21% interest, you’re setting yourself up to lose money over time.
If you have high-interest debt, which can be loosely defined as anything with a double-digit interest rate, it can be a wise idea to pay it off before you think about investing money elsewhere. The average American has about $6,500 in credit card debt, so many people can benefit from this. The good news is that the average tax refund would cover more than half of this amount.
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.
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.
Account Type | 2026 Contribution Limit | Type of Tax Advantage | Who Should Use One? |
|---|---|---|---|
401(k) | $24,500 ($32,500 if over 50 or $35,750 if 60-63) | Traditional or Roth | Employees who qualify, especially with employer matching. |
Traditional IRA | $7,500 ($8,500 if 50 or older) | Traditional (tax-deferred) | People who want an immediate tax deduction for contributions. |
Roth IRA | $7,500 ($8,500 if 50 or older) | Tax-free retirement income | People who anticipate being in a higher tax bracket in retirement. |
Health Savings Account (HSA) | $4,400 (self-only) or $8,750 (family coverage) | Immediate tax break and tax-free withdrawals for health expenses. | People who have a high-deductible health plan. |
Why investing tax refunds makes sense
As mentioned earlier, the average American’s tax refund is $3,521 as of March 27, 2026. But if you invest this money, instead of spending it, it could be worth far more to you over the long run. Consider that this amount of money invested at the S&P 500’s average long-term rate of return would be worth roughly $61,500 after 30 years. That’s why investing your tax refund could be one of the smartest financial decisions you can make in 2026.
Related investing topics
Investing Your Tax Refund FAQ
About the Author
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.
