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Can’t decide what to do with your tax refund? Split it

Experts say splitting your tax refund can help

Experts say splitting your tax refund can help keep you from using it all on a spending spree. Photo Credit: Getty Images/iStockphoto / BackyardProduction

For many people, getting a tax refund is like getting a handful of sand: It’s virtually impossible to hang on to much of it.

But it doesn’t have to be that way. You can have the IRS split your refund across a number of accounts, perhaps some less accessible than your checking account, and thus keep that windfall from slipping through your fingers.

  • How it works

Fill out Form 8888 and the IRS will directly deposit your refund into as many as three accounts of your choosing. That means you don’t have to dump that $2,860 (the average refund in 2016, per the IRS) into your checking account, where it might end up getting spent at the mall. Instead, you can funnel some or all of it directly into a retirement account, college savings, a health savings account or a brokerage account, to name a few options.

You don’t have to send the same amount to each account. Alternatively, if you really want to strengthen your delayed-gratification skills, you can use the form to buy up to $5,000 of Series I savings bonds or direct the IRS mail some of your refund in a paper check.

If you’re using tax software, many providers make it easy to fill out Form 8888 as part of the filing process.

  • Where you can put your split refund

You can list virtually any accounts you like on Form 8888, as long as each has an account number and a routing number, says Scott McRuer, a CPA in Kansas City, Missouri. The accounts must be able to accept direct deposit, and the name on the accounts must be yours, your spouse’s or both. That means you can’t have the IRS send part of your refund to a friend or a grandchild, or to the professional who prepared your taxes, if you used one.

If you’re sending money to an individual retirement account, it’s important to tell the trustee or custodian which tax year your contribution is for. This is because you have until the April filing deadline to make IRA contributions for the previous tax year.

  • Don’t mess up the account information

Transposing just one pair of numbers could cause huge headaches, because the IRS makes clear on Form 8888 that it is not responsible for a lost refund if you enter incorrect account information.

“You’re on your own as far as getting the money back,” McRuer warns.

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