Can I Contribute My Tax Return to My Traditional IRA?

by Maggie McCormick

For many, the yearly tax refund represents a tidy windfall and if you'd like to do something more responsible with your money than taking a vacation or buying a new TV, you can use that money to invest in your traditional IRA. In fact, the IRS makes it easy for you to do this.


Your retirement savings are essential for paying your way for retirement. It's sometimes difficult to budget in money for these accounts throughout the year. Since the tax refund amount isn't a part of your usual monthly budget, you can often get by without it. Applying this money toward your traditional IRA allows the money to grow tax-free until you need it.

Contribution Limits

The contribution limit for your IRA accounts is $5,000 to $6,000 if you are over 50 -- as of the time of publication. This is the total allowable contribution even if you have multiple IRA accounts. If your tax refund is more than $5,000, you can only apply $5,000 toward your IRA and the rest of the money can go to a checking or savings account. If the refund is less than that, you can apply the full amount to your traditional IRA, provided that you have not yet made any IRA contributions for the current year.


You can have the IRS issue you a check or deposit the money directly into your checking account. From there, you can transfer the money into your IRA account. An easier alternative -- and one that allows you to avoid the temptation of spending money in your account -- is to have the IRS directly transfer the money into your traditional IRA account. Use Form 8888 to direct the money to multiple accounts.


Though the deadline for making contributions to your IRA account is April 15 of the following year, you should not count on using the contribution from your tax refund as a deduction for the current filing year. For example, the refund that you receive in 2012 for the 2011 tax year should go towards the 2012 IRA contributions.