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IRS makes it easier to save

By HELEN HUNTLEY
Published October 29, 2006

You all want to save more than you are saving now. It seems a universal goal: To find a little extra money to put away in an emergency fund, a retirement plan or a money market account.

This presents two challenges. Where do you find some extra money? And then where do you put it?

For many Americans, one of the largest chunks of money received all year is their tax refund. The average refund amount issued by the IRS each year exceeds $2,000. Maybe you generally don't get quite that much - or, maybe, you get even more. Either way, can you remember where last year's check went: into home repairs, your car's gas tank, a vacation? Or are you scratching your head?

What you probably didn't do is invest it in a 401(k), individual retirement account, or other retirement fund, or even deposit it in a savings or money market account. Why? Because that wasn't especially easy. The IRS has offered direct deposit for years, but previously you had to dump the entire check into a single account. So you very likely put it in checking, where you used it to run your life instead of fund your future.

That's not the case anymore. The IRS said starting next year, taxpayers will be able to split their refunds among up to three different accounts at three different financial institutions. This means that no matter what amount your check is made out for, whether it's $200 or $2,000, you'll be able to save a portion without feeling as though you're ignoring the needs of your wallet.

"The split refunds are going to help people with low- to moderate-incomes who have a hard time saving by allowing them to put some of it away without committing all of it. There is an enormous potential here for a lot of households," says Bill Gale, a senior fellow at the Retirement Security Project, one of the groups that pushed hard for the change.

[Last modified October 28, 2006, 20:25:34]