HERO Act Expands IRA Options for Military
HERO Act Expands IRA Options for Military
Members of the military serving in Iraq, Afghanistan and other combat zone localities can now put money into an individual retirement account, even if they received tax-free combat pay, according to the Internal Revenue Service.
Under the Heroes Earned Retirement Opportunities (HERO) 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.
“The HERO act is one more way to let our fighting forces in combat areas know that we support them,” said IRS Commissioner Mark W. Everson. “This is a good way for people serving in combat zones to save more of their earnings 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 these 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.
Taxpayers choosing to put money into a Roth IRA don’t need to report these contributions on their individual tax return. Roth contributions are not deductible, but distributions, usually after retirement, are normally tax-free. Income limits and other special rules apply.
On the other hand, contributions to a traditional IRA are often, though not always, deductible, and distributions are generally taxable.
Deductible or not, contributions to a traditional IRA must be reported on the return for the year made. Deductible contributions are claimed on Form 1040, 1040A or 1040NR. Nondeductible contributions are reported on Form 8606, which is normally attached to one of these individual return Forms.
If a return has already been filed for a particular year, contributions should be reported on an amended return, Form 1040X. Depending upon the circumstances, military personnel who choose to put money into a traditional IRA for 2004 or 2005 may qualify for additional tax refunds.
For those planning ahead, the IRA contribution limit for 2006 is $4,000 for those under age 50 and $5,000 for those 50 and over.
Source: Internal Revenue Service
—————————————————————————————————————————————————————————————————————
We hope you found this article about “HERO Act Expands IRA Options for Military” helpful. If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or our website at www.GROCO.com. Unfortunately, we no longer give advice to other tax professionals gratis.
To receive our free newsletter, contact us here.
Subscribe our YouTube Channel for more updates.
Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
Alan L. Olsen, CPA, Wikipedia Bio
GROCO.com is a proud sponsor of The American Dreams Show.
The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.
Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.
The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.
They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..
American Dreams discusses many topics from some of the world’s most successful individuals about their secrets to life’s success. Topics from guest have included:
Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…
MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness. It’s mission statement:
In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.
Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.
Some of the Most Amazing Tax Deductions Ever
At GROCO, we have been doing this for more than 50 years. That means we’ve heard just about every crazy tax story you can imagine. With tax season now officially in full swing we thought we would share some of the craziest tax deduction stories we’ve ever heard; and they’re all true. A gas station…
Is The U.S. Really a Low-Tax Country?
Many U.S. taxpayers feel that our country’s taxes are too high, no matter which economic class you’re in. Likewise, regardless of which side of the political world you rest, most people would agree that the U.S. tax system needs some serious upgrading, and not just some fine-tuning. However, it appears that compared to many of…
Will Your Tax Return Draw the IRS’s Attention?
No one wants to experience a tax audit. The good news is that most people never will have to go through that experience. The IRS simply doesn’t have the time and resources to audit every tax return. In fact, the IRS only audits about 1 percent of all returns. That means most people don’t have…
Can a Roth Really Help You Lower Your Taxes?
Patience is a virtue, but will it save you money on taxes? That depends on the situation, but if you’re talking about a Roth IRA, then the answer is typically yes. Traditional IRAs will usually give you an immediate tax savings, while a Roth IRA won’t. However, for those who have patience, a Roth can…