Can’t Decide What to Do With Your Refund? Split It

You can have the IRS put your refund into an investment account or into several accounts automatically. Here's how.
Tina Orem
By Tina Orem 
Edited by Chris Hutchison

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For many people, getting a tax refund is like getting a handful of sand: It’s virtually impossible to hang on to much of it.

But it doesn’t have to be that way. You can have the IRS split your refund across a number of accounts, perhaps some less accessible than your checking account, and thus keep that windfall from slipping through your fingers.

How to split your refund

  1. Fill out IRS Form 8888. The IRS will directly deposit your refund into as many as three accounts of your choosing. That means you don’t have to dump your refund into your checking account, where it might end up getting spent at the mall. Instead, you can funnel some or all of it directly into a retirement account, college savings, a health savings account or a brokerage account, for example.

  2. Decide what goes where. You don’t have to send the same amount to each account. Alternatively, if you really want to strengthen your delayed-gratification skills, you can use the form to buy up to $5,000 of Series I savings bonds or direct the IRS mail some of your refund in a paper check. If you're using tax software, many providers make it easy to fill out Form 8888 as part of the filing process.

» Estimate your taxes: Try our tax calculator

Where you can put your split refund

  • You can list virtually any accounts you like on Form 8888, as long as each has an account number and a routing number, says Scott McRuer, a CPA in Kansas City, Missouri.

  • The accounts must be able to accept direct deposit, and the name on the accounts must be yours, your spouse’s or both. That means you can’t have the IRS send part of your refund to a friend or a grandchild, or to the professional who prepared your taxes, if you used one.

  • If you’re sending money to an individual retirement account, it’s important to tell the trustee or custodian which tax year your contribution is for. This is because you have until the April filing deadline to make IRA contributions for the previous tax year.

You can have the IRS split your refund across a number of accounts, perhaps some less accessible than your checking account, and thus keep that windfall from slipping through your fingers.

Don’t mess up the account information

Transposing just one number could cause huge headaches, because the IRS makes clear on Form 8888 that it is not responsible for a lost refund if you enter incorrect account information.

“You're on your own as far as getting the money back,” McRuer warns.

Mind the order of accounts

  • If you’ve asked the IRS to split your tax refund but there’s a delay processing your return, beware: The IRS will deposit your money only into the account you list first on Form 8888.

  • When the IRS catches a math error that means a bigger refund for you, it puts the extra money into the last account listed on the form. But if the error makes your refund smaller, the IRS takes the decrease from the amount you specified for the last account on your list and, if necessary, works its way up the list until the decrease is taken in full.

  • The process is the same for past-due federal taxes, but if you’re behind on state taxes, child support, alimony, student loans or certain other things, the IRS uses the account routing numbers to decide, proceeding from the lowest number on up to the highest number.

The irony of tax refunds

Splitting your refund can be a good thing, but avoiding a refund in the first place is better, says Mike Repak, a senior estate planner and vice president at financial advisory firm Janney Montgomery Scott.

“If the refund is large,” he says, “it indicates you probably didn’t manage your tax affairs during the course of the year. … In essence, you're making an interest-free loan to the government.”

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