Military Personnel Now Able to Count Combat Zone Pay for IRA Contributions

June 2006

On May 29, 2006, President Bush signed the “Heroes Earned Retirement Opportunities Act” (H.R. 1499), which allows military personnel to include combat zone compensation in the determination of allowable individual retirement account contributions.

Normally, combat zone compensation is nontaxable and therefore not included in determining whether an individual has includible compensation sufficient to permit an IRA contribution. However, the bill allows combat zone compensation to be included in taxable income solely for the purposes of calculating the yearly maximum IRA contribution.

The bill applies to taxable years beginning after December 31, 2003. The retroactive effective date would bless prior IRA contributions that were made on the understanding that combat zone compensation would be counted for purposes of the limit and would explicitly allow military personnel to make retroactive IRA contributions for the 2004 and 2005 tax years (and receive income tax refunds attributable to such years). This retroactive contribution opportunity for 2004 and 2005 would be available for three years beginning on the date of enactment. [White House press release]