Tax Refund Direct Deposit Options

Direct deposit options include deposit into your savings, checking, retirement account or split refunds into two or three accounts and new in 2010 to purchase Treasury / Savings Bonds.

 

Tax Refund Direct Deposit

Using direct deposit of your tax refund ias simple. You just enter your account number and your nine digit ACH/Routing number into your tax return.

Direct deposit is safer, because the money goes directly into your account so no lost checks. The direct deposit usually means you will get your refund a week sooner as well, in some cases in as little as ten days.

 

Splitting Tax Refunds

You may want to split your refund into two or three different accounts. As an example you may want some of your refund to go into savings, some into your checking and some into a retirement fund. Other examples of financial accounts eligible to receive deposits include health savings accounts and Coverdell education savings accounts.

Some prepaid Visa accounts will also let you make a direct deposit into them, check with your account holder to see if this is possible.

Splitting a refund requires tax Form 8888, Direct Deposit of Refund to More Than One Account, to split a tax refund into two or three financial accounts. The form provides instructions.

 

Buying Savings Bonds with Tax Refunds – Form 8888

New in 2010 is the ability to use your tax refund to buy up to $5,000 in low-risk, liquid Treasury Bonds, which earn interest and protect owners against inflation.

The purchased bonds will be issued in the taxpayer’s name. If the refund is a joint refund, the bonds will be issued in the names of both taxpayers. No beneficiary may be selected. The taxpayer need not have a Treasury Direct account to purchase Bonds using this option.

Using Form 8888, the taxpayer enters 043736881 as the routing number and checks the “savings” box. He must use the letters “BONDS” as the account number.
An I Bond request must be a multiple of $50. The taxpayer also needs to designate an account to which he wants the IRS to deposit the balance of his refund. For example, if his refund is $280, the taxpayer can request that $250 be used to purchase I Bonds and that the remaining $30 be deposited into a checking, savings or investment account.

In cases where a refund is an exact multiple of $50 but less than $5,000, the taxpayer may direct that all of the refund be applied to I Bond purchases by filling out the direct deposit information on his tax return and simply not using Form 8888.

The savings bonds will be mailed to the taxpayer.

Bonds will not be purchased in situations where the taxpayer makes an error figuring his refund, or if the bond request is not a multiple of $50 or the refund is offset for any reason. In these cases, the requested purchase will be cancelled and the entire refund mailed to the taxpayer in the form of a check.

Once the IRS has processed a tax return and placed an order for I Bonds, the taxpayer can inquire about the status of his bond purchase by calling the Treasury Retail Securities Site at 1-800-245-2804.

 

Individual Retirement Arrangements and Tax Refunds

Refunds may be deposited directly into previously established traditional IRAs, Roth IRAs and SEP-IRAs. (They may not be deposited into SIMPLE IRAs.)

The taxpayer should check with his financial institution to confirm that it accepts direct deposits as well as inform the trustee of the tax year to which the IRA should be contributed. For example, if a taxpayer intends for a direct deposit to be designated as a 2009 IRA contribution but fails to inform the trustee, the deposit might be designated as a 2010 contribution. The direct deposit contribution to an IRA must be made prior to April 15 in order to apply to the 2010 tax year.

How to Get Credit for Retirement Savings Contributions

If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be eligible for a tax credit.

 

Here are six things you need to know about the Retirement Savings Contributions Credit:

1. Income Limits The Savers Credit, formally known as the Retirement Savings Contributions Credit, applies to individuals with a filing status and income of:

  • Single, married filing separately, or qualifying widow(er), with  income up to $27,750
  • Head of Household, with income up to $41,625
  • Married Filing Jointly, with income up to $55,500

2. Eligibility requirements To be eligible for the credit you must have been born before January 2, 1992, you cannot have been a full-time student during the calendar year and cannot be claimed as a dependent on another person’s return.

3. Credit amount If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 or up to $2,000 if filing jointly. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.

4. Distributions When figuring this credit, you generally must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date – including extensions – for filing the return for the credit year.

5. Other tax benefits The Retirement Savings Contributions Credit is in addition to other tax benefits which may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.

6. Forms to use To claim the credit use Form 8880, Credit for Qualified Retirement Savings Contributions.

 

How to Get Credit for Retirement Savings Contributions

For more information, review IRS Publication 590, Individual Retirement Arrangements (IRAs), Publication 4703, Retirement Savings Contributions Credit, and Form 8880. Publications and forms can be downloaded below or ordered by calling 800-TAX-FORM (800-829-3676).

 

IRS Information about Retirement Savings Contributions

  • Form 8880, Credit for Qualified Retirement Savings Contributions (PDF 46K)
  • Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)
  • Tax Topic 610

Ten Tips for Taxpayers Contributing to an Individual Retirement Plan

If you haven’t made all the contributions to your traditional Individual Retirement Arrangement that you want to make – don’t worry, you may still have time.

Here are the top 10 things the Internal Revenue Service wants you to know about setting aside retirement money in an IRA.

  1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit formally known as the Retirement Savings Contributions Credit.
  2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2009 must be made by April 15, 2010. Additionally, if you make a contribution between Jan. 1 and April 15, you should designate the year targeted for that contribution.
  3. The funds in your IRA are generally not taxed until you receive distributions from that IRA.
  4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for IRA contributions.
  5. For 2009, the most that can be contributed to your traditional IRA is generally the smaller of the following amounts: $5,000 or $6,000 for taxpayers who are 50 or older or the amount of your taxable compensation for the year.
  6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.
  7. You must use either Form 1040A or Form 1040 to claim the Credit for Qualified Retirement Savings Contribution or if you deduct an IRA contribution.
  8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.
  9. You must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation, however, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements for additional rules.
  10. Refer to IRS Publication 590, for more information on contributing to your IRA account.

 

Both Form 8880 and Publication 590 can be downloaded below or ordered by calling 800-TAX-FORM (800-829-3676).

Top 10 Tips about IRA Contributions

IRA retirements accounts are a great way to plan for retirement. As the years winds down, it is important to begin assessing what kind of contributions you may be making to a retirement plan. You can contribute to your traditional IRA at any time during the year. You must make all contributions by the due date for filing your tax return. This due date does not include extensions. For most people this means you must contribute for 2012 by April 15, 2013. If you contribute between Jan. 1 and April 15, you should contact your IRA plan sponsor to make sure they apply it to the right year.

 

Top 10 Tips about IRA Contributions

The great thing about a traditional IRA is that, even if you make contributions in the following tax year, the IRS lets you take a deduction for some of these IRA contributions on your prior-year tax return (you must make the contributions by mid-April). In other words, if you are filing your 2014 taxes, the contributions you make to a traditional IRA through mid-April of 2015 may be deductible. This is why your account administrator has until May 31 to send Form 5498 to you.

There is still time to make contributions to your traditional Individual Retirement Arrangement, better known as an IRA.

 

Below are the top ten things you should know about money you put aside for retirement in an IRA.

  1. You may be able to deduct some or all of your contributions to your IRA and you also may be eligible for a tax credit equal to a percentage of your contribution.
  2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2008 must be made by April 15, 2009.
  3. The amount of funds in your IRA are generally not taxed until you receive distributions from that IRA.
  4. To figure your deduction for IRA contributions, use the worksheets in the instructions for the form you are filing.
  5. For 2008, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts: $5,000 or the amount of your taxable compensation for the year. Taxpayers who are 50 or older can contribute up to $6,000.
  6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit.
  7. You cannot deduct an IRA contribution or claim the Credit for Qualified Retirement Saving Contributions on Form 1040EZ; you must use either Form 1040A or Form 1040.
  8. To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year.
  9. You must have taxable compensation, such as wages, salaries, commissions and tips. If you file a joint return, only one of you needs to have compensation.
  10. Refer to IRS Publication 590, Individual Retirement Arrangements, for information on the amounts you will be eligible to contribute to your IRA account.

You may also qualify for the Savers Credit, formally known as the Retirement Savings Contributions Credit. The credit can reduce your taxes up to $1,000 (up to $2,000 if filing jointly). Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the Saver’s Credit.

You can get a traditional IRA if you’re under age 70 1/2 and receive taxable compensation.

  • Wages, salaries, and tips
  • Sales commissions
  • Professional fees
  • Bonuses
  • Self-employment income
  • Military compensation while serving in a combat zone tax-exclusion area
  • Alimony or separate maintenance payments included in gross income

 

Income not included as compensation for IRA purposes includes:

  • Profit from the sale of stocks or other property
  • Rental income
  • Pension or annuity income
  • Deferred compensation

Both Form 8880 and Publication 590 can be downloaded below or ordered by calling 800-TAX-FORM (800-829-3676).

 

Additional IRS Resources on IRA Accounts: