4 Ways to Increase Retirement Savings With Your Tax Refund

Updated for tax years 2025 and 2026.

If you received a tax refund this year, you may have big ideas on how to spend it. Possibly a well-deserved getaway … somewhere peaceful with no Wi-Fi access sounds nice. So does an upgrade to your home’s outdated appliances — and a little extra fun money to freshen up your closet.

But do you know what lasts much longer than all of those? Compound interest. And this is how you can use it to boost your retirement.

Whether you owe it by way of credit card debt or enjoy its benefits through investments, you’ve likely experienced the power interest wields over time. That’s why lump sums of cash are so valuable — when invested wisely, they make large imprints on your financial future.

So, if you’d like to use your refund to boost your retirement, consider these four approaches that can add a little extra shine to your golden years.

1. Pay down high-interest debt.

While this isn’t an investment in the traditional sense, think of it as an investment in you. The interest rate on your credit card is typically higher than your rate of return in the stock market, which means paying that debt down now will actually pay you more long-term. 

2. Max out your Roth IRA.

Roth IRAs are an excellent way to stash extra cash and boost your retirement. Think of your IRA as a sandwich; you can fill it with all kinds of investments based on your appetite for risk. Choose from stocks, bonds, mutual funds, ETFs, or other market tools — it’s up to you to select investments that match your goals.

Because Roth IRAs use money that’s already been taxed, the amount you put in grows tax-free. That means when you’re ready to make withdrawals, you won’t pay compounded tax. Instead, you’ll enjoy all the growth on your original investment.

If you’re under 50, annual contributions are capped at $7,000 annually for 2025 (increasing to $7,500 for 2026). If you’re over 50, your annual contribution limit increases to $8,000 ($8,600 for 2026).

Roth IRAs also have lighter restrictions than other retirement tools. One of the primary selling points for Roth IRAs is that you can withdraw your contribution amounts for any reason, at any time, penalty-free (though any gains you made can only be withdrawn penalty-free once you are eligible to make qualified withdrawals).

To contribute to a Roth IRA, your modified adjusted gross income (MAGI) must be less than $165,000 as a single filer in 2025 (rising to $168,000 in 2026). For those married filing jointly, your MAGI must be less than $246,000 in 2025 (rising to $252,000 in 2026).

3. Put it in an HSA.

We hear it all the time: Max out your 401(k) and other traditional savings vehicles. But rarely does that conversation include your health savings account (HSA) — and if you have a high-deductible health plan (HDHP), it really should.

As healthcare costs rise, your HSA offers excellent tax advantages on medical costs, both now and in the future. For example, funding an HSA through your employer via pre-tax income lowers your overall federal and state tax liabilities. When you invest your refund into your HSA, those funds are tax-deductible, even if you don’t itemize.

Key benefits to investing in an HSA:

Enjoy tax-free growth in your account balance.

Take tax-free withdrawals for qualified medical expenses.

Carry your balance over annually. There’s no “use it or lose it” with an HSA.

You aren’t required to take HSA withdrawals at certain ages, like with a 401(k) or IRA.

You 100% own this money, so it follows you, not your employer.

4. Put it in a traditional IRA.

Traditional IRAs come with their own tax benefits, especially if your employer doesn’t offer a 401(k). The main difference between a traditional IRA and a Roth IRA is that a traditional IRA uses pre-tax funds, while a Roth IRA uses after-tax funds. This means you’ll pay some taxes when you make withdrawals from a traditional IRA, but you could qualify for a nice tax break in the year you make the contribution.

Next steps

Wondering what else you can do with your tax refund this year? Check out our detailed income tax refund guide for more information on tax refunds, from filing your taxes to receiving the refund money.

This article is for informational purposes only and not legal or financial advice. 

All TaxAct offers, products and services are subject to applicable terms and conditions.