TAX TIME: Stretch tax refunds with smart saving
By Benjamin Waldrum
U of A System Division of Agriculture
Feb. 12, 2016
- IRS estimates 70 percent of tax filers will receive refunds this year
- Average individual tax refund last year was $2,797
- Use IRS Form 8888 to automatically save all or part of a tax refund
LITTLE ROCK — A tax refund can feel like a personal stimulus package. And although it’s tempting to use it right away, saving some or all of it can pay dividends down the road, said Laura Hendrix, assistant professor of family and consumer science with the University of Arkansas System Division of Agriculture.
“Tax time can be a great opportunity to build financial stability by increasing savings,” she said. “Put your tax refund to work by spreading it around to fit your needs now and in the future.”
According to the IRS, 70 percent of tax filers are expected to receive refunds this year. The average amount of an individual tax refund last year was $2,797.
The first step towards saving that refund is using IRS Form 8888 (which can be found here: https://www.irs.gov/pub/irs-pdf/f8888.pdf).
Form 8888 automatically saves all or part of a tax refund in up to three accounts. These include savings accounts at a bank or credit union, TreasuryDirect® online, IRA (traditional, Roth, or myRA), or a Coverdell education savings account. In addition to these options, tax filers can purchase U.S. Series I Savings Bonds.
To use direct deposit, the tax filer must have his or her own account. “You can’t deposit your refund into someone else’s account, and even if you could, there are a host of reasons you wouldn’t want to do it, including scams and financial abuse,” said Hendrix.
Routing and account numbers for each account must be listed on Form 8888. Contact the financial institution for the account for help finding these numbers.
Savings bonds require the names of the owners. This can be yourself, a spouse, children, grandchildren, or anyone else. Bonds can also designate co-owners, and there is the option of designating a beneficiary – someone to inherit the bond if the owner dies.
Using Form 8888 also ensures a speedy refund.
“Direct deposit is a faster way to receive your refund than by check,” she said. “If you request a check, it can take weeks or months to get to you.” There’s also the added benefit of not having to keep track of, and possibly misplacing, a refund check.
Another good incentive to save money is the chance to receive even more money.
Save Your Refund is a promotional campaign and contest sponsored and funded by two nonprofit organizations, America Saves and Doorways to Dreams. To enter the contest, visit saveyourrefund.com. Save a minimum of $50 for a chance to win weekly prizes, and submit a photo to be entered to win the grand prize of $25,000.
“Getting a tax refund is already a win,” said Hendrix. “Saving all or part of your refund can make that winning feeling last a lot longer.”
For more information on recommended savings strategies, contact your county Extension office or visit www.uaex.edu.
The University of Arkansas System Division of Agriculture offers all its Extension and Research programs and services without regard to race, color, sex, gender identity, sexual orientation, national origin, religion, age, disability, marital or veteran status, genetic information, or any other legally protected status, and is an Affirmative Action/Equal Opportunity Employer.
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Media Contact: Mary Hightower
Dir. of Communication Services
U of A Division of Agriculture
Cooperative Extension Service