Posted on 05/31/2006 4:20:49 PM PDT by SandRat
WASHINGTON, May 31, 2006 – An act signed into law May 29 by President Bush solves a conflict in the tax code by allowing servicemembers who serve in a combat zone to still contribute to their individual retirement accounts, a Defense Department official said here today.
The Heroes Earned Retirement Opportunities Act amends the Internal Revenue Code to allow servicemembers to include tax-exempt combat zone pay in determining the allowable income tax deduction for contributions to retirement savings plans, said Army Lt. Col. Janet Fenton, executive director of the Armed Forces Tax Council.
The tax code requires a certain amount of taxable income for someone to be qualified to deduct contributions to retirement plans, Fenton said. Servicemembers who received tax-exempt pay in combat zones were running into trouble because their taxable income wasn't high enough, so they were either prevented from contributing to their retirement accounts, or they were facing tax penalties for doing so, she said.
The "Heroes Act," as it's been dubbed, makes an exception to the rules about retirement accounts for servicemembers in combat zones, Fenton said.
"It's just a specific act to help our military members in the combat zone who are using individual retirement accounts," Fenton said.
The Heroes Act is retroactive for two years, so anyone who has served in a combat zone in the past two years can fix tax problems or make contributions they may have missed due to this problem, she said. These servicemembers have three years to fix problems from the past, she said.
"They don't need to panic or do anything right away; they have a large window of time," Fenton said.
The Internal Revenue Service will soon be issuing more guidance for servicemembers who qualify under the Heroes Act, Fenton said. In the meantime, questions can be directed to military legal offices, she said.
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