GetThis: New Law Solves Tax Conflict
By Carl Surran
Fall 2006
New legislation signed by President Bush allows servicemembers serving in a combat zone tax exclusion area to contribute to an Individual Retirement Account (IRA), resolving a quirk in the tax law that had disallowed this practice.
Military compensation earned while serving in a combat zone area will continue to be excluded from federal income tax. Enlisted members and warrant officers may exclude all such compensation; commissioned officers may exclude up to the maximum amount of enlisted pay plus imminent danger pay for the months served in a combat zone tax exclusion area.
The new law, the Heroes Earned Retirement Opportunities (HERO) Act, is retroactive to the tax year 2004. Members who did not make an IRA contribution during 2004 or 2005 because their combat duty made them ineligible will have until May 28, 2009 (three years from the date of the law's enactment) to make an IRA contribution for those years.
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Carl Surran is managing editor of Military Money.
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