New Way to Make IRA Contributions
Wouldn't it be great if you could make your tax refund right into your IRA for your annual contribution?
Well, now you can. The IRS now allows you to split your refund into several accounts including an existing IRA account.
To do this you need to file Form 8888 with your return. There are a couple of tricky caveats so be sure to read all the instructions.
For instance the IRA account must already be established. And you must let your financial institution know that the deposit is coming and which year you want it applied to. If you don't designate the deposit as a 2006 contribution it could be treated as a 2007 contribution.
Also, don't expect to file your return on April 15th and have this work for you. The contribution needs to be deposited by April 15th so you should give the IRS some time to make the deposit. If you don't get it in on time you'll have to amend your return to reduce any IRA deduction and savings contribution credit.
And if the IRS needs to adjust your refund because of a math error or a past-due federal tax there are some wacky rules about how the change will be allocated between the accounts. This is important because there are penalties for over contributing to your IRA. Check the instructions on the form for more details and IRS Publication 590, Individual Retirement Arrangements (IRAs) for more information on IRA contribution rules and limits.