New IRA Options for the Military
For enlisted members and warrant officers, all of their combat zone military pay is excluded from federal tax. (Officers pay is excluded up to the maximum amount of enlisted pay plus some.)
However, often times, with their pay not being included on their tax return, they couldn’t contribute to an IRA. (The 2008 IRA contribution is the lesser of $5,000 or the individual’s total taxable pay).
Now there is good news for our military servicemen and women. A law called the HERO Act (Heroes Earned Retirement Opportunities Act) was signed in May, 2006. It gives a new tax benefit to those members of the military, serving in a combat zone, such as
Retroactive to 2004, their tax-free pay is now considered in determining if they can make a contribution to an IRA.
If the service member did not make an IRA contribution for 2004 or 2005 due to limitations based on combat pay, they have until May 29, 2009 to make these special back-year contributions to either a traditional IRA or a Roth IRA.
If they have already filed those tax returns and want to contribute to traditional IRA, they just need to amend 2004 and/or 2005 tax returns. If the contribution is now deductible, they may qualify for additional tax refunds! For additional information on IRAs, see IRA Tax Topics.
If they contribute to a Roth IRA, an amended return does not need to be filed.
The maximum contribution for 2004 is $3,000 and for 2005 is $4,000.
For the IRS news release, check out IRA Options for the Military.