Split Your Refund ... Boost Your Savings

Go ahead: Tell your tax refund where to go.

New IRS rules--effective beginning in 2007 for the 2006 tax year--allow you to split your tax refund and send direct deposits to as many as three different accounts with three different financial institutions. And the new rules apply regardless of whether you file on paper or electronically.

For many families of all income levels, the opportunity to direct their refunds to as many as three accounts is a savable moment--an opportunity to build wealth. The average refund check for the 2006 tax year was about $2,260. Even a portion of that would go a long way toward building an emergency cash reserve for unplanned bills and repairs.

In the past, many filers sent the windfall directly to their checking account and spent it before the money could be transferred to savings. Split refunds are expected to boost the savings rate, which dipped below zero in 2005 and stayed in negative territory throughout 2006.

But don't limit yourself to savings accounts. You can direct your refund check to money market accounts, individual retirement accounts, health savings accounts, individual development accounts, and even Coverdell Education Savings Accounts. [EDITOR'S NOTE: Insert specific credit union accounts that qualify.]

Splitting your refund is easy. Use IRS Form 8888 to designate to which accounts--and in what amounts--you want your refund disbursed. Be aware, though, that you have certain responsibilities:

* You must provide an accurate account and routing number for each account you designate to receive part of your federal tax refund. If there's an error, you'll receive a check for the entire amount of your refund.

* If you're designating only one account, use the direct deposit line on Form 1040. If you're designating two or three different accounts, fill out and attach Form 8888 to your individual filing form (1040, 1040A/EZ, 1040NR, or any of the 1040 series).

* If you're directing part of your refund to an IRA, it's up to you to check with the financial institution to make sure it accepts direct deposits to IRA accounts. Also, tell the IRA trustee the year you want the deposit credited for. Make sure you don't exceed your annual contribution limit.

* You cannot direct your refund into accounts of others. You can, though, direct your joint refund into joint accounts or accounts of your spouse.

For more information about split refunds, visit splitrefunds.net.

Copyright 2007 Credit Union National Association Inc. Information subject to change without notice. For use with members of a single credit union. All other rights reserved.