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- Often overlooked tax advantage allows automatic redirection of refund without delay
- Form 8888 enables over-payments to be directed to fund traditional IRAs, ROTH IRA, or SEP-IRA
- Deadline to make election extended to July 15th due to COVID-19
- SIMPLE IRA still excluded
Each year, the Internal Revenue Service (IRS) permits taxpayers to use Form 8888 to have any over-payments on their Income Tax Return deposited directly into a traditional IRA, Roth IRA, or SEP-IRA. Taxpayers who file Form 8888 eliminate the delay of having to transfer their tax refunds into different accounts, opting instead to automatically direct the funds as they desire. In order for the contribution to be considered deductible on an individual’s 2019 1040 return, the deposit must be made into the IRA on or before to the deadline, which the IRS extended to July 15th (normally April 15th) due to COVID-19 disruptions.
In order to be eligible to take advantage of this benefit, the following conditions must be met:
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- IRA must be established at a bank or eligible financial institution before a deposit is requested
- Taxpayer must confirm direct deposit will be accepted
- IRA owner must instruct the IRA trustee as to which year the deposit should be considered
- If failed to be notified, IRA trustee will assume contribution in the year which it is received
Moreover, it is important to note that, if an over-payment is to be treated as an IRA contribution for the preceding year, any errors on the return that could change the over-payment could result in over-funding or under-funding the IRA and possibly subjecting the taxpayer to additional taxes or penalties. Want a safer route? We recommend using the Form 1040 over-payment for the year it is actually deposited in the IRA, allowing the account owner to make additional contributions or withdrawals if the refund is different than anticipated.
Visit our website or call our offices at (516) 541-6549, so our highly trained, capable Tax Team can assist you in filing and taxing advantage of the benefits Form 8888 has to offer.
Sincerely,
Gigi Boudreaux
Tax Partner
Contact:
516-541-6549 | Email