Members of the military serving in Iraq, Afghanistan and other combat zones can now put money into individual retirement accounts, even if they received tax-free combat pay, according to the Internal Revenue Service.
Under the Heroes Earned Retirement Opportunities Act, signed into law on Memorial Day, taxpayers can now count tax-free combat pay when determining whether they qualify to contribute to either a Roth or traditional IRA. Before this change, members of the military whose earnings came entirely from tax-free combat pay were generally barred from using IRAs to save for retirement.
In addition, the HERO Act allows military personnel who received tax-free combat pay in either 2004 or 2005 to go back and make IRA contributions for those years. Eligible military members will have extra time, until May 28, 2009, to make the special back-year contributions.
For those under the age of 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.
Previously on WebCPA:
Bill Allows Combat Pay as IRA Compensation (June 1, 2006)
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