Tax-Return Funded IRAs and Splitting Your Refund

Did you know that with the passing of the Pension Protection Act of 2006, you are now permitted to take your tax refund in three, as opposed to two, ways. The first two, as a check or a direct deposit into a savings or checking account, are still available but the Pension Protection Act added a third option: direct deposit into an IRA. The Act also made it possible for you to split your return into up to three accounts as opposed to just one, as it was in the past.

While you can put your refund into an IRA, it doesn’t change the fundamental IRA rules. If you want to make a contribution in 2006, it has to be done before April 15th, 2007; so if you want your tax refund contribution to count for 2006 then you have to file your return early enough so that the refund gets back to you before April 15th.

To split your refund’s direct deposit into multiple accounts, you will need to fill out Form 8888 to indicate where the funds will go. You can send the refund to any U.S. financial institution with valid routing and account numbers.