Using Your Income Tax Refund as an IRA Contribution | Ed Slott and Company, LLC

Using Your Income Tax Refund as an IRA Contribution

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

If you're lucky enough to be getting an income tax refund from IRS for 2013, you might be wondering what you can do with that money. Certainly you can use it to pay some bills, or treat yourself to something you've wanted to buy for a while.

But if you're thinking about using that refund to help save for retirement, you're in luck. The IRS allows you to have that refund check directly deposited into an IRA if you follow certain procedures when you file your federal income taxes for 2013.

If you have an extension to file your 2013 taxes until October 15, 2014, when you do file your return, you should consider having the IRS directly deposit your tax refund as an IRA contribution for 2014. Note: You won’t be able to have the refund count for 2013 because the deadline for making a 2013 IRA contribution was April 15, 2014. But why not consider using it as a 2014 IRA contribution?

To have the IRS directly deposit your tax refund as a 2014 IRA contribution, there are several rules you’ll need to follow. First, make sure the IRA custodian will accept it and notify them in advance.

You’ll need to file IRS Form 8888, Allocation of Refund (Including Savings Bond Purchases), if your refund will be directly deposited to two or three different accounts. However, if you’re depositing your refund to only one account (i.e., your IRA), simply note the direct deposit information on the appropriate line of your federal tax return.

Lastly, know that you must meet all the IRA rules for making a 2014 contribution. For example, for a traditional IRA contribution, you must have compensation and be under age 70 ½ for all of 2014. For a Roth IRA contribution, you must have compensation and your income must be below certain levels to be eligible for a Roth IRA contribution (e.g. under $181,000 if you are married and filing jointly for 2014).
 

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