Category Archives: Direct Deposit to IRA

Section 830 of PPA permits direct deposit of tax refunds into Individual Retirement Accounts (IRA).

Direct Deposit of Tax Refund into IRA

The Boston Globe today has an article about Section 830 of the Pension Protection Act. Section 830 permits permits directly depositing tax refund into Individual Retirement Accounts. The article raises a number of good points, including the contribution timing issue caused if the tax refund is deposited for 2006, the IRS could deposit it past the April 17th deadline. Directly depositing the entire amount of the tax refund is done by filling in the information on line 74 of Form 1040. To split the refund between an IRA and another account, Form 8888 must be attached to Form 1040. The Instructions for Line 74 on Form 1040 state:

Individual Retirement Arrangement (IRA) You can have your refund directly deposited to a traditional IRA, Roth IRA, or SEP-IRA, but not a SIMPLE IRA. You must establish the IRA at a bank or other financial institution before you request direct deposit. Make sure your direct deposit will be accepted. You must also notify the trustee of your account of the year to which the deposit is to be applied. If you do not, the trustee can assume the deposit is for the year during which you are filing the return. For example, if you file your 2006 return during 2007 and do not notify the trustee in advance, the trustee can assume the deposit to your IRA is for 2007. If you designate your deposit to be for 2006, you must verify that the deposit was actually made to the account by the due date of the return (without regard to extensions). If the deposit is not made to your account by the due date of the return (without regard to extensions), the deposit is not an IRA contribution for 2006. You must file an amended 2006 return and reduce any IRA deduction and any retirement savings contributions credit you claimed.

You and your spouse, if filing jointly, each may be able to contribute up to $4,000 ($5,000 if age 50 or older at the end of 2006) to a traditional IRA or Roth IRA for 2006. You may owe a penalty if your contributions exceed these limits.

For more information on IRAs, see Pub. 590, Individual Retirement Arrangements (IRAs).

[tags]Pension Protection Act, direct deposit, tax refund, IRA, individual retirement account, Roth IRA, ppa[/tags]