By Theresa Fry, Senior Vice President and Manager, IRA’s and Retirement PlanningPrint This Post
If you haven’t yet filed your tax return and are expecting a refund this year, there is an easy way to turn that refund into retirement savings without being tempted to spend it. Did you know you can direct deposit your tax refund into your traditional or Roth IRA? If you file IRS Form 8888, you can split your refund into as many as three different accounts, including your IRAs.
Most financial institutions will treat the IRA deposit as a current year contribution. For 2019, you can contribute up to $6,000 to your IRAs ($7,000 if you are age 50 or older). That is a combined limit between any traditional IRAs and Roth IRAs you own. All you will need to direct deposit your tax refund to your IRA is your account number and the financial institution’s routing number, so check with your financial institution beforehand to get the appropriate information. The IRA must be in your name.
If you have filed your tax return and are anxiously awaiting your income tax refund, the IRS (and most states) now have a variety of ways for you to quickly check the status of your refund—online, over the phone or through a smartphone app. You will need your Social Security number, your tax filing status, and the exact amount of your refund to use them. The majority of IRS refunds are processed within three weeks. Last year the average federal income tax refund was just under $3,000 so before you go planning your next vacation, you may want to consider using your refund to start or build up an emergency fund, lighten your debt, or bulk up your retirement savings.
Benjamin F. Edwards & Co. does not provide tax advice, therefore it is also important to consult with your tax professional for additional guidance tailored to your specific situation.