Split the Tax Refund
Course Section
- Overview
- Keys to Success
- Where to Save
- Inheritance Tips
- Split the Tax Refund
- Pay off Debt or Save for Retirement
Is your tax refund gone before you know it? If that sounds too familiar, you’ll be interested to learn about a way to make it last longer. The IRS lets you split your refund into different accounts. That way, you can save some money automatically, before you spend it.
Like most people, you probably know that having direct deposit into your savings account makes it simple to save money. That’s because you’ve learned that once your paycheck hits your checking, it often doesn’t last long. Now you can use the same strategy to make your tax refund stretch farther.
Lots of Americans eagerly look forward to getting a tax refund. It’s the biggest chunk of money many people receive all year. The refund offers you a great chance to build an emergency account or to save for retirement. With the option to deposit the refund into two or three accounts, you can simultaneously pay some bills, save for an emergency, and put some away your retirement. You can put your refund to work almost wherever you have your savings—your bank, credit union, brokerage account, or mutual fund.
To take advantage of the opportunity for a split tax refund, all you have to do is fill out IRS Form 8888 when you file your return. You can direct your refund to up to three accounts. So you could send some of your refund to your checking account and the rest to your IRA, or individual retirement account. On the form you’ll have to give the individual account and routing numbers for the savings institutions in which you want your money deposited. Before setting up the direct deposit, it’s also a good idea to check with the financial institution where you want your money to go to make sure you have the correct information for the IRS form. The split-refund option is available whether you file electronically or by mail.
If you want your refund to be deposited directly into just one account, you can still use the appropriate line on Form 1040.
According to the IRS, direct deposit—to one or multiple accounts—is a faster, safer, and more dependable way to get your refund. You’ll get your refund deposited in about half the time it takes to get a paper check. Plus, the new automatic-savings feature ensures more money will be there when you need it during retirement.
AARP Resources
Tax Refund Loans Can Be Costly
Refund-anticipation loans can be a very expensive way to get your tax refund just a little bit sooner.
Other Resources
Form 8888
Complete this IRS form for your split refund. Adobe Acrobat is required.
IRS Divide and Prosper
Click here to read the IRS explanation of how the split-refund option works.
Refund-Anticipation Loans Carry High Price
Be sure you notice that exorbitant annual percentage rate before taking that loan from a tax preparer.
