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5 Smart Ways to Use Your Tax Refund in 2025

Brooke Whitaker |
Categories
Investments
Finance
Tax Planning

Tax season might not spark joy, but a refund sure can.

In 2025, the IRS estimates the average federal income tax refund will top $3,170.1 That means a lot of folks are suddenly asking the same question: What should I do with it?

Splurge? Save? Invest?

The good news: there’s no one-size-fits-all answer. But there are a few options that tend to deliver more peace of mind and long-term upside.

Here are five smart ways to use your tax refund in 2025, plus practical tips to help you make your money work harder (and smarter).

1. Build or Rebuild Your Emergency Fund

Life happens. That’s why most experts recommend stashing away 3–6 months of essential expenses.

But here’s the reality: nearly 19% of Americans don’t have any emergency savings at all.2

If you’re not quite there yet, your tax refund is a great way to start or give your fund a healthy boost.

How to do it:

  • Figure out your monthly must-haves (housing, groceries, insurance, etc.)
  • Multiply by 3 or 6, depending on how steady your income feels
  • Put the money in a high-yield savings or money market account so it’s accessible, but still earning a little interest

Even adding $1,000–$2,000 to your safety net can make you feel more secure and resilient.

2. Pay Off High-Interest Debt

If credit cards or personal loans are eating into your monthly cash flow, your refund could help knock them out faster.

For example, paying off a $3,000 credit card with a 20% APR saves you about $600 a year in interest.

How to do it:

  • Start with debts charging 10%+ interest (especially credit cards)
  • Use the "avalanche" method, pay off the highest rate first while making minimums on the rest
  • Once one balance is gone, roll that payment toward the next

Less debt = more freedom to save, invest, and breathe easier.

3. Use Your Tax Refund to Build Wealth

Even a few thousand dollars invested today can grow into something meaningful down the road.

If you’ve been waiting to open a Roth IRA or increase your 401(k) contributions, this might be the nudge you need.

How to invest your tax refund:

  • Already have a 401(k)? Consider increasing your contribution by 1–2% and using the refund to “cover the gap” in your budget
  • No IRA yet? You can open one in minutes with a brokerage platform
  • Not sure where to start? A target-date fund or broadly diversified ETF can get you going without overthinking it

Want to see the power of compounding in action? For example, $3,000 invested today might grow to over $12,000 in 20 years, assuming a consistent 7% annual return.

Of course, this is a hypothetical illustration only. Actual investment results will vary and are not guaranteed.

4. Make a Meaningful Life Upgrade

Not everything has to be strictly financial. Sometimes, the best use of your refund is spending it in ways that reduce daily stress or improve your quality of life.

Regular home maintenance is one place to start. The average household spends over $10,433 a year just keeping things in working order.3 Catching up on repairs now can help you avoid bigger bills later.

But life upgrades don’t stop at your front door. Your refund can also fund improvements that make your day-to-day more enjoyable and fulfilling.

Think:

  • Booking a weekend getaway to recharge or reconnect with loved ones
  • Buying tools that support your side hustle or passion project
  • Finally scheduling that therapy or coaching you’ve been putting off

Small upgrades can have a big ripple effect on your energy, productivity, and peace of mind.

5. Invest in Yourself

Your skills, time, and energy are powerful assets. Using your refund to grow them can open doors for more income or more purpose.

Ideas to consider:

  • Take a course that helps you get promoted or pivot careers
  • Hire a career coach or resume writer if you're job hunting
  • Start a freelance side hustle you’ve been thinking about
  • Attend a professional conference or networking event

These moves might not pay off immediately, but they can set you up for bigger opportunities down the road.

Ready to Put Your Refund to Work?

Your tax refund isn’t just “extra” money. It’s a chance to hit reset, make progress, and move closer to the life you want.

And if you’re not sure which move makes the most sense for you? That’s what I’m here for.

Let’s talk about your goals and create a plan that fits. Schedule a quick call, and we’ll map out your next steps.

Sources

  1. CNBC, 2025 [URL: https://www.cnbc.com/select/average-tax-refund-2025/]
  2. Bankrate, 2025 [URL: https://www.bankrate.com/banking/savings/emergency-savings-report/]
  3. Bankrate, 2024 [URL: https://www.bankrate.com/homeownership/most-common-home-maintenance-costs/]

This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2026 Advisor Websites.

Portfolio Management

Michael Miller

Michael Miller

Michael Miller, Chairman, President, and Portfolio Manager, has over 15 years’ experience in the industry. He works directly with the firm’s trading, private client and institutional teams and oversees day to day operations, strategic planning and execution. Additionally, Mr. Miller is responsible for convertible bond research and product development, analyzing and monitoring portfolio holdings, and communicating performance, portfolio and fund data. He also constructs and analyzes client portfolios and works directly with the firm’s institutional clients. He frequently speaks at national investment conferences educating investors about the convertible bond asset class. Mr. Miller received his Bachelor of Science degree in Business Administration from American University’s Kogod School of Business in Washington, DC, where he specialized in finance, and his Master of Business Administration degree from Babson College.

Greg Miller

Greg Miller

Greg Miller, CPA, Portfolio Manager and Founder, has over 30 years’ experience investing in convertible bonds. Mr. Miller founded Wellesley Asset Management in 1991. He is the architect of the firm’s convertible bond investment strategy and has been Portfolio Manager on Wellesley’s separately managed account and prior mutual fund suites since their inception. Mr. Miller has written numerous articles and has been profiled in various prominent investment and financial publications, including Barron’s, Institutional Investor, Investment Advisor Magazine, and Bloomberg Businessweek. He has been the recipient of numerous industry-related awards throughout his career and a frequent guest speaker on convertible bond investing. Mr. Miller graduated from Boston University with a Bachelor of Science degree in Business Administration, and holds a Master of Business Administration in Finance with high distinction from Babson College.

David Clott

David Clott CPA

Portfolio Manager and Co-CIO

David joined Wellesley in 2023 with over 30 years of asset management industry experience. His convertible bond investing experience began in the mid 1990’s as an analyst at Phoenix Investments. David joined Aviva Investors in 1999 as a US convertible bond portfolio manager and in 2002 David founded the Aviva Investors Global Convertible Bond Strategy, launching a European based long only convertible mutual fund. In 2005 he founded the Morley (Aviva) Convertible Arbitrage hedge fund and in 2009 he founded the Aviva Investors Global Convertible Absolute Return fund. David graduated from Bryant University with a Bachelor of Science degree in Finance and received his Master of Science degree in Energy and Climate Policy from Johns Hopkins University. He holds the CFA designation.

James Buckham

James Buckham CFA

Portfolio Manager and Co-CIO

Jim joined Wellesley in 2011 with over 30 years of asset management industry experience. Jim is responsible for researching new convertible bond investment opportunities, monitoring existing holdings, trading, and instructing clients and prospects about convertible bond investing. His professional background encompasses over thirty years of fixed income trading, deal making and analysis experience. Before joining Wellesley Asset Management, Jim worked at DeutscheBank on the convertible bond desk advising mutual funds and hedge funds in New York, Boston and Toronto. Prior to that Jim spent 12 years trading convertible bonds, equities and derivatives at Fidelity Investments. Jim graduated from Boston University with a Bachelor of Arts degree in Economics and received his Master of Business Administration degree from Bentley University. He holds the CFA designation.