Build Wealth With Your Refund |
A taxpayer-friendly change included in last year's Pension Protection Act is now in effect. It allows you to make a direct deposit of all or a portion of your individual federal income
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More Refund Options
Starting this year, taxpayers have more choices and flexibility for the direct deposit of their federal tax refunds.
For the first time, you can split your refund among up to three accounts held by as many as three different U.S. financial institutions, such as banks, mutual funds, brokerage firms and credit unions. So part of your refund could go to a checking account to take care of immediate needs and another part could go to an IRA to save for retirement. |
tax refund into your IRA, or your spouse's IRA if you file jointly. You can make direct deposits to both traditional and Roth IRAs. Of course, the normal contribution limits still apply.
The new refund contribution option is available for refunds from calendar-year 2006 returns. You can take advantage right now by arranging to have your 2006 Form 1040 filed by the April 17 deadline. The IRA deposit information must be entered on line 74 of your Form 1040.
Key Point: If you extend your 2006 return past April 17, you can't make a direct deposit IRA contribution for the 2006 tax year, but you can make a contribution for this year.
How much can you contribute? For both 2006 and 2007, you can contribute up to $4,000 to a traditional or Roth IRA. If you are age 50 and older, you can make an additional $1,000 "catch up" contribution.
IRA Contribution Limits
As you probably know, unfavorable phase-out rules restrict the ability of many people to make deductible contributions to traditional IRAs and contributions to Roth IRAs. However, there is some relief. Starting with the 2007 tax year, another Pension Protection Act provision mandates annual inflation adjustments to the phase-out ranges, which are based on modified adjusted gross income, or MAGI. (Before this year, the phase-out ranges were fixed by statute without any inflation adjustments.) The MAGI phase-out ranges for both 2006 and 2007 are shown in the table below.
Key Point: If your MAGI precludes making a deductible contribution to a traditional IRA or a Roth IRA contribution, you can always make a nondeductible contribution to a traditional IRA, as long as your earned income for the year (from jobs or self-employment) equals or exceeds the amount contributed.
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For 2006 |
Deductible Contributions to Traditional IRAs |
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Filing status |
MAGI phase-out range |
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Unmarried person |
$50,000 to $60,000* |
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Married joint filer |
$75,000 to $85,000* |
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Joint filer non-participating spouse |
$150,000 to $160,000** |
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Married filing separate |
$ 0 to $10,000*** |
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* Applies when individual was a 2006 retirement plan participant.
** Applies when individual was not a 2006 retirement plan participant, but spouse was a participant.
*** Applies when individual or spouse was a 2006 retirement plan participant. |
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For 2006 |
Contributions to Roth IRAs |
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Filing status |
MAGI phase-out range |
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Unmarried person |
$ 95,000 to $115,000* |
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Married joint filer |
$150,000 to $160,000* |
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Married filing separate |
$ 0 to $10,000* |
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* The Roth IRA phase-out ranges apply regardless of whether the individual or spouse was a 2006 retirement plan participant. |
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For 2007 |
Deductible Contributions to Traditional IRAs |
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Filing status |
MAGI phase-out range |
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Unmarried person |
$52,000 to $ 62,000* |
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Married joint filer |
$83,000 to $103,000* |
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Joint filer non-participating spouse |
$156,000 to $166,000** |
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Married filing separate |
$ 0 to $10,000*** |
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* Applies when individual is a 2007 retirement plan participant.
** Applies when individual is not a 2007 retirement plan participant, but spouse is a participant.
** Applies when individual or spouse is a 2007 retirement plan participant. |
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For 2007 |
Contributions to Roth IRAs |
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Filing status |
MAGI phase-out range |
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Unmarried person |
$ 99,000 to $114,000* |
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Married joint filer |
$156,000 to $166,000* |
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Married filing separate |
$ 0 to $10,000* |
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* The Roth IRA phase-out ranges apply regardless of whether the individual or spouse is a 2007 retirement plan participant. |
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