If you're sitting on a tax refund or you're expecting one in the next few weeks, you probably already have some idea of what you want to do with that money. You could use it to pay off debts or to make a large purchase you've been eyeing. Or, if you don't need the money now, you could invest it.
Stashing your tax refund in a retirement account means you give up access to it until you're at least 59 1/2. But in return, that money will grow, and you'll reap the tax advantages associated with that account.
Here's a closer look at how much the average tax refund could be worth by retirement.
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The average tax refund is $2,476
As of Feb. 13, 2026, the average tax refund is $2,476. This is up from $2,169 at the same time last year. Obviously, your refund will vary depending on your income, filing status, and the tax deductions and credits you qualify for.
The table illustrates how much a $2,476 refund could be worth at age 65, depending on your current age and different rates of return.
|
Current Age |
6% Average Annual Return |
8% Average Annual Return |
10% Average Annual Return |
|---|---|---|---|
|
25 |
$25,467 |
$53,790 |
$112,062 |
|
30 |
$19,031 |
$36,609 |
$69,582 |
|
35 |
$14,221 |
$24,915 |
$43,205 |
|
40 |
$10,627 |
$16,957 |
$26,827 |
|
45 |
$7,941 |
$11,541 |
$16,657 |
|
50 |
$5,934 |
$7,854 |
$10,343 |
|
55 |
$4,434 |
$5,346 |
$6,422 |
|
60 |
$3,313 |
$3,638 |
$3,988 |
Data source: Author's calculations. All answers are rounded to the nearest dollar.
There's a lot of variation here, but even if you're only a few years away from retirement, you could still wind up with a substantial gain. And if you're in your 20s or 30s, that one tax refund could be enough to cover a year or more of retirement expenses when paired with Social Security.
Where you put your refund matters
If you're making a one-time retirement account contribution, an IRA is a good choice. You can save in a traditional account or a Roth account, and this will affect when you pay taxes on the money.
A traditional IRA gives you a tax break in the year you make the contribution. So if you put $2,476 in your IRA, your 2026 taxable income would drop by $2,476. This would save you money when you file your taxes next year. The downside is you'll have to pay ordinary income taxes when you withdraw the funds in retirement.
If you'd rather take the money out tax-free in retirement, a Roth IRA is more your style. You pay taxes on contributions to this account, but the government won't count withdrawals toward your taxable income once you're 59 1/2 and have had a Roth account for at least five years.
However, some high earners cannot contribute directly to a Roth IRA. If you fall into that group, you may have to look into doing a backdoor Roth IRA. It'll get you to the same place, but you'll have to jump through a few more hoops.
