Refund to Your IRA

Personal Money Planning |

Gary Silverman, CFP®

Want to pay less in taxes? For the second time this month, I was reading a blog post from my friend and business partner, Michelle Kuehner, ChFC. As she has been prolific this month and I’ve been a bit lazy watching Olympic curling (it IS a sport!), I am shamefully robbing much of what she wrote (with permission) for this column. If you want to see the words she used rather than my version, you can find her blogs at

Tax season—A time when filers scramble around to collect various tax documents, like Form W2, 1099s, and any tax-deductible receipts they can get their hands on.

While it may be a bit too late to make many tax-saving changes for the 2021 tax year, there is still one trick you may be able to pull out of the hat...a deductible contribution to a Traditional IRA. Most think the contribution must be made before they hit the send button on their return. That is not the case. You can file your taxes first and contribute to your IRA later. This way you can use your tax refund as your contribution. Just don’t wait too long as you only have until the filing deadline (April 18th this year). Let’s look at this in a little more detail.

Let’s say that you have prepared your tax return, and it shows you overpaid your fair share of taxes by $1,500. This means you gave the IRS too much money throughout the previous year, and now they owe you that money back. You can take what is yours, and purchase $1,500 worth of tacos, cotton candy, or jellybeans. It is your money, after all. However, another option would be to redirect it toward reducing your taxable income. How? You can use the anticipated return as your deductible Traditional IRA contribution.

As I mentioned above, you have until April 18th this year to contribute to your Traditional IRA. Nowhere does it state that the contribution must be made before you file your tax return. So, claiming the contribution on your tax return, filing your return, receiving your refund, then using the refund to fund the contribution, is just fine.

Sound too good to be true? Might be if you do not provide enough time for the pieces to come together. The IRS is already way behind in issuing refunds. According to the IRS, the average expected refund turnaround this year is about 21 days. For early filers, this should provide adequate time to use the strategy described above. For those counting the minutes until the approaching deadline, this won't work for you. Well, not unless you have an extra $1,500 sitting around with which you can float yourself a short-term loan.


Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing. Michelle Kuehner, ChFC® is a Registered Investment Advisor Representative and President of Personal Money Planning.