Waiting for Your 2011 Tax Refund?

If you are fortunate enough to be receiving an income tax refund for 2011 you just might have to wait a little longer than usual to obtain it.

A new software system recently installed by the IRS for processing electronic tax returns has experienced problems during this tax filing season, angering taxpayers whose refunds have been delayed. The delay in sending out certain refunds began in February. The IRS had projected that taxpayers who filed their 2012 electronic returns by April 17 would get direct deposit refunds 7 to 13 days later, as opposed to 17 days for non-direct deposit refunds. Last year, direct deposit refunds went out 8 to 10 days after e-files came in, while it took 22 days for refund checks sent by mail. The problem seems to center around taxpayers who claimed the homebuyer credit in 2008 and affects only a small number of taxpayers overall.

If you haven’t made your full 2011 IRA contribution you have until April 17 to do so. Any part of a refund you may receive from your 2011 taxes would be a great way to contribute to your IRA for 2012. If you haven’t filed your return yet you can even instruct the IRS to have some or all of your tax refund directly deposited to one or more of your IRAs (direct deposits of tax refunds can be made to up to three separate financial accounts.) If you choose to fund your IRA in this manner, be sure to provide your IRA custodian with written instructions regarding the tax year(s) for which the contribution should be credited. Otherwise, the IRA custodian will most likely code the contribution for 2012.

If your modified adjusted gross income exceeds the limit for being able to fully deduct a Traditional IRA contribution, consider making a non-deductible IRA contribution. The non-deductible IRA funds will still have the opportunity to grow on a tax deferred basis. Better yet, funding a Roth IRA, if you qualify, is another good idea because any growth will not be taxed to you or your heirs upon withdrawal, assuming you meet certain requirements. You cannot contribute to a Traditional IRA beginning with the year you will attain age 70 ½, but you can contribute to a Roth IRA at any age if you have eligible compensation.

- By Marvin Rotenberg and Jared Trexler

Posted in: April 17,Ed Slott,ed slott ira,financial,IRAs,IRS,marvin rotenberg,money,Retirement,savings,Tax Planning,tax refund