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As tax season approaches, I wanted to take a moment to remind you of some unique benefits that are available to the brave men and women serving in our Armed Services.

 

Heroes Earned Retirement Opportunities (HERO) Act:

On May 29, 2006 President Bush signed into law the Heroes Earned Retirement Opportunities (HERO) Act. The HERO Act allows members of the Armed Forces serving in a combat zone to include nontaxable combat pay as compensation for purposes of determining traditional IRA or Roth IRA contribution amounts.

Prior to this act, because combat pay is nontaxable and excluded from gross income, a serviceman or servicewoman with only combat pay was unable to make an IRA contribution.

 

Additional time to make traditional IRA or Roth IRA contributions:

Generally, traditional IRA or Roth IRA contributions are due by the tax filing deadline (April 17, 2012 for the 2011 tax season), not including extensions. However, military members and their spouses may qualify for a deadline extension of up to 180 days after the last day served in a combat zone, hazardous duty area, or certain other deployments, plus the number of days that were left to make the IRA contribution at the time service in the combat zone began. The extension doesn’t just apply to traditional IRA or Roth IRA contributions, but also to filing tax returns, paying taxes, and claiming a tax refund.

 

Heroes Earnings Assistance and Relief Tax Act (HEART) Act:

On June 17, 2008 President Bush signed into law the Heroes Earnings Assistance and Relief Tax (HEART) Act. One of the major provisions of the HEART Act relates to the ability to roll over Service members’ Group Life Insurance (SGLI) payments to a Roth IRA or a Coverdell ESA.

 

The Act permits an individual who receives a military death gratuity or SGLI to contribute the funds to a Roth IRA and/or one or more Coverdell education savings accounts. In addition, the contributions would be treated as rollover contributions and not subject to normal income or contribution limits. The contribution must be made within one year from the date the taxpayer receives the military death gratuity or SGLI payment. This provision is generally effective for payments made on accounts of deaths from injuries occurring on or after June 17, 2008.

 You may ask questions in the comments or contact me privately Tim Barton, ChFC

 

If you have any questions, talk to your financial or tax professional.

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4 Responses to Remembering Our Troops during Tax Season

  1. Patty on April 13, 2012 at 8:47 am

    You don’t hear too much about changes in tax law for the military because many of us are not involved in a military life. But that doesn’t mean we aren’t concerned about our military families and all of the hardships they go through. This was a great article to read and to realize that something is being done for these families so they are able to put money away for themselves even if their sole income was combat pay.

    The Heart Act makes total sense to me as well. Thank you for this information. I would truly enjoy reading more about what is done to help our military families.

    • Avatar of Tim Barton
      Tim Barton on April 15, 2012 at 2:15 pm

      Agreed, taking care of our Military members as best we can is the least we can do.

  2. Trish Nuzum on December 11, 2012 at 3:56 pm

    I really need some advice on on SGLI funded Roth IRA distributions and taxes. While I originally opened a roth IRA with the sole intention of sending my daughter to college; (her older brother’s one request “if anything happened to him”, when he enlisted into the service,)it seems the money is slowly being appropriated for other reasons. First, housing, then food, books, furniture for the house, home and car repair, medical bills, ect. I believe that the college tuition is not taxable, but I am not at all sure how all the ‘extra’ expenses will impact the taxes, Especially since my daughter is now married, (oh-her husband is also now unemployed- and the Roth Ira is in MY name, but these kids can’t seem to catch a break and it really is HER money. I can’t think that her brother wouldn’t want me to help them,but i am pretty much in over my head-tax wise) Someone told me that only the earnings would be taxable and I need not worry about any of the original ‘cash’ distributions-Is this the case? If not, then which college expenses are taxable and which are not? thank you

    • Avatar of Tim Barton
      Tim Barton on December 12, 2012 at 1:56 pm

      Someone told me that only the earnings would be taxable and I need not worry about any of the original ‘cash’ distributions-Is this the case

      Yes this is correct. Also if you are over 59 1/2 and the money has been in the Roth for 5 years interest distributions will not be subject to income tax.

      I believe that the college tuition is not taxable, but I am not at all sure how all the ‘extra’ expenses will impact the taxes First, housing, then food, books, furniture for the house, home and car repair, medical bills, ect. I believe that the college tuition is not taxable, but I am not at all sure how all the ‘extra’ expenses will impact the taxes,

      Correct, Roth IRA distributions for educational purposes are not subject to income tax this would include text books and other required course materials. Since the Roth is in your name, your medical expenses or those of your dependents, I believe, would be qualified distributions not subject to income tax.

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