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April 3, 2009

Splitting Tax Refunds for Direct Deposits of IRA Contributions

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Definition

A split tax refund is a direct deposit of a tax-refund into more than one account.  Effective for tax years beginning 2006, taxpayers are allowed to have their tax refunds directly deposited into traditional IRAs, Roth IRAs ,SEP IRAs , HSAs and ESAs as regular contributions. Prior to 2006, direct deposits of tax refunds could only be made to regular checking and savings accounts.

Key Considerations

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.
If the refund is intended  to be  a contribution for the previous year, it must be credited to the IRA by April 15. ( When April 15 falls on a weekend or public holiday, the deadline is extended the next business day)
The taxpayer should ensure that the IRA is opened before the refund monies are deposited with the financial institution.

More Information

For more information about IRA contributions  and split tax refunds, see :

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 http://irapublications.com. 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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