Investing tax returns: smart strategies for making the most of your refund

By Jamie Viceconte, Head of Investment Product | Citizens Wealth Management

_{Jamie joined Citizens Wealth Management in 2022 and is responsible for the curation and management of the investment product suite of ETFs and Mutual Funds, and portfolio models constructed with these products. As a strategic partner, he has over 30 years of experience in financial markets focused on a broad array of public and private equity and fixed income products.}

When you get a tax refund, your first thought may be to use it all to pay down debt or build your emergency savings. However, investing tax returns today for potential growth tomorrow could prove to be a better financial move.

When it comes to investing tax returns, there are endless ways to divvy up a refund based on what financial goals matter to you. No strategy is one size fits all. Sometimes the best place to start is with a group of ideas. From there, you can choose one or a combination of them that align with your financial goals.

Also, don’t feel pressure to have everything figured out. If you're ready to put your tax refund to work, you could consider meeting with a CERTIFIED FINANCIAL PLANNER™ professional or financial advisor for help translating your financial goals into a long-term plan.

Ready to start exploring your options? Consider these ideas for investing your tax refund.

1. Increase your 401(k) contributions

Since you must make contributions to a 401(k) from payroll deductions, you can't directly invest your tax refund into your employer's plan. However, you can bump up your 401(k) contributions for the year to an amount equal to your refund.

For example, say your tax refund was $3,600. You could increase your 401(k) contributions by an extra $300 per month. Your workplace's benefits department can help you increase your contribution rate, or you may be able to do it yourself through your provider’s website or app.

2. Max out your IRA contributions

If you haven't been able to max out your IRA contributions in previous years, your tax refund could help. The IRA contribution limits are $7,000 for those under age 50 for the 2025 tax year.¹

By investing your refund in your IRA, you can get a jump on your retirement savings for the year. Both Roth IRAs and Traditional IRAs have tax advantages that could help you grow your retirement savings. While you contribute after-tax dollars to a Roth IRA, earnings can grow tax-free and qualified withdrawals are tax-free. Contributions to a traditional IRA may be tax deductible, if certain conditions and income limits are met, and potential earnings can grow tax deferred.

3. Make catch-up contributions

For people age 50 and older, you may be able to give your retirement savings an additional boost. Qualified retirement accounts like IRAs, 401(k)s, and 403(b) plans let older adults make catch-up contributions that are above the standard contribution limits.

Catch-up contributions for IRAs are an extra $1,000 for people age 50 and older for the 2025 tax year. For 401(k)s and 403(b)s, you can catch up even more. Annual contribution limits for these plans are $23,500 for 2025, plus an additional $7,500 for those 50 and older. For 2025, there is also a higher catch-up contribution limit for those age 60 – 63.¹ Using your tax refund to make even a partial catch-up contribution can help accelerate your savings when closer to retirement.

4. Invest in education and professional development

If your retirement savings are on track, you might have other priorities like sending your kids to college or returning for an advanced degree. Investing your tax returns can help you achieve your educational goals as well.

A 529 plan is like an IRA, but instead of saving for retirement it helps you save for your own educational expenses or for the future education expenses of your children. You contribute after-tax money, and your investments grow tax-deferred. Your withdrawals are tax-free as long as they're used for qualified educational expenses like tuition, books, and room and board. You might even be able to deduct your contributions from your state income taxes.

5. Plan for the future

You could also consider using your tax returns to help pay for your current insurance premiums or additional policies. While it may not be a traditional investment, you're investing in your family's future. A term life policy could help cover your mortgage balance or provide income replacement to help financially protect your family should the unthinkable happen. A whole-life policy could provide both life insurance and potential future cash value should you need access to funds during your lifetime.

Why investing tax returns makes sense

The good news about investing your tax returns? You have plenty of options to put your tax refund to work today so it keeps working for you tomorrow. You can even make investing your refund an annual ritual, moving the needle on your financial goals.

Curious about how to put your tax refund to work? Find out how a Citizens Wealth Advisor* can help with your strategy and create a personalized financial plan that fits your goals.

Request a call