Roth IRA and tax question?

Question

I want to open an ira, but I am wondering if its possible to use my tax return to fund my IRA? Can I use my tax return for this year or will I have to set aside the money and fund the IRA for the following year with last years tax return. I hope this makes sense..

Answer 1

It is very common to fund an IRA with your tax return. Form 8888 was designed with that intention in mind.

Form 8888 was newly created this year to allow direct deposit to up to three accounts. One of these accounts can be an IRA, and you can file your original tax return with the intention of using that refund to fund the deduction you may already have on your tax return. (I know this is getting circular, but it works)

If you use direct deposit to fund your IRA make certain the the receiving institution will be able to place it under the correct tax year.

Answer 2

You can open and fund a Roth IRA for 2006 up to April 17, 2007. The source of money doesn't matter. It could be your tax refund, if you receive it in time.

Now with a traditional, deductible IRA, if you plan on funding this with your tax return, you are taking a chance that your refund money will come to you in time, and that it will be enough to cover your contribution.

Commercial preparers will allow you to set up a traditional IRA (or Roth) using your refund, while your tax return is done. You have to deposit the IRA money at the preparer's bank, then you could move it later.

Answer 3

Since a Roth IRA is not tax deductible, you can fund it any way you wish. Using a tax refund is an excellent way to get the ball rolling.

Answer 4

You would have to file an amended return for last year because last year's return was based on you not having had the IRA.
I see what you're trying to do, but it doesn't work when you think about it a bit harder.