02/ 02/ 2007
by Joan Szabo
New law allows taxpayers to deposit refunds into retirement accounts
New this tax-filing season is a change in the law that allows taxpayers to deposit their tax refunds into an Individual Retirement Account, or IRA. The new provision is part of the Pension Protection Act of 2006 enacted last August.
Under the law, taxpayers can split their refund among three checking or savings accounts and three different U.S. financial institutions by using Form 8888, Direct Deposit of Refund. Taxpayers must establish the IRA at a bank or other financial institution before requesting a direct deposit. It's also necessary to notify your account trustee of the year the deposit is to be applied, such as 2006.
The Internal Revenue Service advises that if you want the IRA deposit to apply for 2006, it is important to verify that the deposit was actually made to your account by the due date of the return. If you don't make the deposit by the due date, the IRS will not consider it a 2006 IRA contribution. Keep in mind that if you and your spouse are filing jointly, each of you may be able to contribute up to $4,000 (or $5,000 if age 50 or older at the end of 2006) to a traditional IRA or Roth IRA for 2006.
NFIB.com
Want more tips from NFIB on how small-business owners can plan for their golden years? Visit "Retirement Solutions" in the "Taxes" section of www.NFIB.com/toolsandtips
