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April 3, 2009

Split Tax Refund for Direct Deposits of IRA Contributions

Your Guide



A direct deposit of a tax-refund into more than one accounts, where one (or more) of the accounts is an IRA.
Provision- The Split Tax Refund 
The split tax refund provision was created under the Pension Protection Act of 2006, and became effective for tax years beginning 2006.  Under this provision, taxpayers are allowed to have their tax refunds directly deposited into traditional IRAs, Roth IRAs and SEP IRAs as regular IRA contributions. Refunds can also be deposited to HSAs and ESAsThese amounts cannot be credited to a SIMPLE IRA.
Prior to 2006, direct deposits of tax refunds could only be made to regular checking and savings accounts.
An individual who is making a direct deposit of his or her tax refund to just one account would input the account information on the tax return (Form 1040). If the refund is being split between two or three accounts (three is the maximum), the taxpayer must complete IRS Form 8888.

Referring Cite

News Release IR-2006-85, IRS Form 8888, IRS Publication 590

Additional Helpful Information

  • If the refund is intended to be a contribution for the previous year, it must be credited to the IRA by April 15. If the deposit is credited to the IRA after April 15, it cannot be treated as a contribution for the previous year ( Unless April 15 falls on a weekend or public holiday which is a non-business day, in which case the deadline is extended from April 15 to the next business day).
  • The taxpayer should ensure that the IRA is opened before the refund is deposited with the financial institution.
  • If the financial institution is unable to process the deposit (or reject the deposit for any reason), the IRS will send the taxpayer a check for the amount.
  • If a taxpayer completes Form 8888, all of the refund amount must be credited to accounts as direct deposits. None of the amount can be sent to the taxpayer as a check.
  • The account to which the direct deposit is being made must be an account for which the registration includes the taxpayer’s name.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


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