How To Spend and Save Your Tax Refund

How To Spend and Save Your Tax Refund

2019/11/20

If you’d like to save or use your tax refund checks, make sure you utilize the options provided by the Internal Revenue Service (IRS). The IRS is allowing you to deposit your tax refund checks in maximum four accounts. This article provides you with the options for saving or using your tax refund money and explains how you should inform the IRS about it.

How to use or save tax refund checks

You can have your refund money deposited directly into your checking account, savings account and/or your individual retirement account. Also, you can use up to $5000 in tax refund checks for the purchase of savings bonds. The amount used should be a multiple of $50.

This means if your refund money is 580, you can use up to $550 to purchase bonds. The remaining amount can be deposited into any other account mentioned earlier.

If you have joint refund money, you can ask the IRS to deposit it into individual accounts held by any one partner or both. Just check if your financial institution allows joint refund money deposited into an individual account.

Other ways to save your refund money is depositing it into money market accounts, Coverdell education savings account, health savings accounts and individual retirement accounts like traditional IRA or Roth IRA.

However, you need to set up your retirement account first and let your IRA trustee know which tax year your refund money applies to. Otherwise, there can be financial complications if the refund deposited is considered for the previous year and a deduction is claimed for it.

How to let the IRS know where you’ll deposit the refund

If you want your tax refund to be deposited into one account, you need to mention it on Form 1040EZ, 1040A or 1040. However, if you’d like to divide the refund money into different parts and have each part deposited into multiple accounts, then you need to send Form 8888, Allocation of Refund also.

To let the IRS know that you’ll be splitting your refund money, you need to check the box on Form 1040, Form 1040EZ or 1040A (whichever you’re using). The IRS will then check your Form 8888 for further details. However, when you’ve decided to deposit your tax refund checks into multiple accounts, keep the single direct deposit section on Form 1040 blank.

How To Spend and Save Your Tax Refund personal-finance

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