The Heroes Earned Retirement Opportunities Act has passed through Congress and is expected to be signed into law by President Bush. The bill would allow excluded combat pay to be treated as compensation under IRA contribution rules.
Barring certain circumstances, individuals or spouses who aren't participating in certain employer-sponsored retirement plans can make annual cash contributions to an IRA -- up to the lesser of either a set dollar limit ($4,000 in 2006, or, $5,000 for those 50 or older), or their gross income for that year.
Under the Tax Code, combat-zone compensation has been excluded from that income, and for commissioned officers, the exclusion is limited to the maximum enlisted amount. Areas designated as combat zones include much of the Middle East, including Afghanistan and Iraq.The retroactive HERO Act will affect tax years beginning after 2003, and will allow excludable combat to be treated as if it were includible compensation for IRA purposes. The rule also applies for contributions to Roth IRAs.
