A Great and Long Overdue Retirement Saving Idea — From the IRS!

You can direct that your tax refund be directly sent to one or more tax-deferred accounts before you get your hands on it:

The federal government is making it simpler for us to save for retirement: if you’re due a refund on your 2006 tax return, you can instruct the IRS to send all or part of this amount directly to your IRA.

Starting this year, you can tell the IRS to split your refund and send it to up to three different accounts by attaching Form 8888 , “Direct Deposit of Refund to More Than One Account,” to your tax return.* Potential accounts eligible for direct deposit include checking and savings accounts, a Health Savings Account, Coverdell Education Savings Account, and, of course, your IRA.

(But, a word to the wise — Ed.) In the case of IRA contributions, it’s up to you to verify that your IRA custodian has credited the deposit to the correct year. The IRS will not provide any information about this.

Follow-up idea: If you are getting a big refund, that means you lent Uncle Sam the money for a year interest-free, and could have had that money working for you; of course, you might have spent it if you’d had it, which is why tools like CYMnow.com exist, and naturally need to be combined with willpower, to help prevent that. You should increase the withholding allowances you claim with your employer to avoid putting in too much from this point forward. The IRS has a Withholding Calculator that may help, and it also has Publication 919 (a PDF, not linked; got www.irs.gov to find), which is supposed to help you slog your way through the process.

But, IF (emphasis IF) your income and tax situation in 2006 (marital status, number of children, home owned, etc.) aren’t going to change much or at all during 2007, it may be best to download the actual withholding tables from IRS Employer Circular E (first item listed at this search; actual document is a PDF) to see exactly what will happen to your withholding each pay period with each additional exemption you claim. There are tables for almost all filing statuses and pay frequencies.