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HERO Act expands IRA eligibility for deployed servicemembersPosted by Roth-IRA-401k on: 2006-12-06 15:38:22 in category:
IRA [ Print | Permalink / 0 Comment(s) ] BY U.S. Army, Europe Public Affairs WASHINGTON (Army News Service, Dec. 5, 2006) - Servicemembers and their families tend to have a few more rules to master than the average American when it comes to tax time: Which allowances are taxable? Are they qualified for a combat-zone tax exemption, and if so, for how much of their income? What about a reenlistment bonus earned while deployed but not paid until redeployment - is it taxable? This tax season, another question will likely be high on a Soldier's list: What is the HERO Act, and how can it work for me? The HERO Act The answer, according to the Internal Revenue Service, is that members of the military serving in Iraq, Afghanistan and other combat zones can now put money into an individual retirement account, even if they received tax-free combat pay. Under the Heroes Earned Retirement Opportunities Act, signed into law on Memorial Day, servicemembers can now count tax-free combat pay when determining whether they qualify to contribute to either a Roth or traditional IRA. Before this change, military members whose earnings came entirely from tax-free combat pay were generally barred from using IRAs to save for retirement. "The HERO act is one more way to let our fighting forces in combat areas knows that we support them," said IRS commissioner Mark W. Everson. "This is a good way for people serving in combat zones to save more of their earnings for retirement." Additionally, the HERO Act allows servicemembers who received tax-free combat pay in either 2004 or 2005 to go back and make IRA contributions for those years. Those eligible have until May 28, 2009, to make these retroactive contributions. IRA contributions For those under 50, the IRA contribution limit was $3,000 for 2004 and $4,000 for 2005. For those 50 and over, the limit was $3,500 for 2004 and $4,500 for 2005. For the current tax year, the IRA contribution limit is $4,000 for those under age 50 and $5,000 for those 50 and over. Roth IRA contributions are not deductible, but distributions, usually after retirement, are normally tax-free. Income limits and other special rules apply. Contributions to a traditional IRA are often, though not always, deductible, and distributions are generally taxable. Deductible or not, contributions to a traditional IRA must be reported on the return for the year made. Deductible contributions are claimed on Form 1040, 1040A or 1040NR. Nondeductible contributions are reported on Form 8606, which is normally attached to one of these individual return forms. If a return has already been filed for a particular year, contributions should be reported on an amended return, Form 1040x. Depending on circumstances, military personnel who choose to put money into a traditional IRA for 2004 or 2005 may qualify for additional tax refunds. For tax tips and more information on issues affecting uniformed taxpayers, go to www.irs.gov and enter the keyword "military" in the search field. |
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