Take advantage of your tax refund

Take advantage of your tax refund

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Story Published: Jan 24, 2007 at 3:48 PM PDT

Story Updated: Jan 24, 2007 at 6:16 PM PDT

By Herb Weisbaum

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Get that IRS refund check and what's your first response? A lot of people can't wait to spend it.

The smart thing to do is take advantage of a new law that took effect in January (Pension Protection Act of 2006) that lets you split your refund and have the money directly deposited in as many as three accounts at three different financial institutions. One of those accounts can be an IRA.

"In the past, you gave the IRS a routing number for a checking or savings account and that's where the money went," explains Sandra Block, a personal finance reporter at USA Today. "Now you have this additional option of routing it to an IRA or to a combination or a checking, savings account and an IRA."

Block says this is a great way to stash some extra cash in your IRA without ever touching the money. "It's sort of a no-sweat way to save for retirement and take the temptation out of your hands," she says.

If this sounds like something you're going to do, here are a few tips from AARP that should make the process easier:

· Decide ahead of time how much you want to deposit in each account

· Check with your financial institutions to make sure they accept direct deposits to the accounts you are planning to designate

IRS form 8888  explains all the ins and out of this new refund system. You will need to complete that form and return it with your individual filing form.

More Information:

USA TODAY: Top off your New Year's list with 4 nearly painless financial resolutions

IRS Expands Taxpayers' Options for Direct Deposit of Refunds

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