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April 30, 2017

Special IRA provisions for Certain Members of the Armed Forces

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Originally written March 2010

While most us can either take a few hours off from work, or use our time-off from work to handle our financial matters, active serving members of the Armed Forces usually do not have that option. Instead, they usually have to wait until the end of their tour of duty, or handle it when they are on leave. As a result, special provisions are available to allow these individuals to conduct their financial affairs, including those related to retirement accounts.

The following are some of these special provisions for IRAs and employer plans.

Extended Deadline for IRA Contributions:

The deadline for making IRA contributions is usually the individual’s tax filing due date. For most individual taxpayers that date is April 15. However, Armed Forces personnel receive an extension to that deadline. Under this extension, IRA contributions can be made by 180 days after the later of the following:

  • The last day the individual is in a combat zone, has qualifying service outside of the combat zone, or serves in a contingency operation; or
  • The last day of any continuous qualified hospitalization for injury from service in the combat zone, contingency operation, or while performing qualifying service outside of the combat zone.

This is further extended by the number of days that were left for the individual to make her IRA contribution at the time her service began. For instance, if she began the service on December 31, she would have had 3 ½ months left to make her IRA contribution for the year. Therefore she would have an additional extension of 3 ½ months.

Not Active Participants

Generally, an individual who receives benefits or contributions under an employer sponsored retirement plan is an active participant. This active participant status can adversely affect the individual’s eligibility for deducting a contribution to a Traditional IRA, depending on her marital status and modified adjusted gross income.  Members of reserve components are not treated as active participants if they participate in a governmental plan established by the United States, a State or political subdivision, or by an agency or instrumentality of any of the foregoing; and they serve 90-days or less on active duty during the year. Active duty for training is not counted as part of the 90-day period.

Nontaxable Combat Pay is ‘Compensation’ for IRAs:

Generally, an individual must receive taxable compensation during the year, in order to be eligible to make a contribution to an IRA. An exception to this requirement is nontaxable combat pay received by members of the Armed Forces, while serving in a combat zone. This exception allows members of the Armed Forces who are serving in combat zones to make contributions to their IRA, even if the only income received for the year is their nontaxable combat pay.

Military Service Counts as Eligibility Service for Employer Plans

An employer sponsored retirement plan may include provisions which require employees to work a certain number of years in order to be eligible to participate in the plan and to receive contributions. Qualifying military service can be treated as service with the employer for purposes of plan eligibility. Under this provision, the individual must work for the employer within five years of leaving the job, if she returns to work for the same employer.

Suspension of Loan Repayments

Generally, loans from employer plans must be repaid in level amortized payments at least quarterly, and payments must be completed within five years, unless the loan was used towards the purchase of a principal residence for the employee. Loans which do not meet this requirement may result in a ‘deemed distribution’ to the participant, and become subject to income tax. An exception to this requirement is made for Armed forces members who are on military leave. Under this exception, loan repayments may be suspended during the military leave, without resulting in a deemed distribution. However, the loan would continue to accrue interest.

For more information on benefits for armed forces members, see IRS Publication-3, available at www.irs.gov.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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