Friday, August 15, 2008

Tax Relief for Heroes

On June 17, 2008, President Bush signed the Heroes Earnings Assistance and Relief Tax Act into law. This law provides various tax breaks for military personnel and their families. Here is a summary of the key benefits:

Penalty-Free Withdrawals
Reservists who get called into active duty will be allowed to withdraw funds from their retirement plans such as IRAs, 401(k)s, and 403(b)s without having to pay the standard 10% penalty. Note, these withdrawals will still be taxed as income, it is only the actual 10% penalty that is being waived.

Tax-Free Rollovers
Military death benefits and military insurance proceeds may be rolled over into ROTH IRAs or Coverdell Education Savings Accounts (ESAs) tax-free without regard to the standard limits/restrictions.

Economic Stimulus Payments
As long as one spouse is a member of the military, the couple will qualify to receive an economic stimulus rebate check.

Earned Income Credit
Non-taxable combat pay will be treated as earned income when calculating the Earned Income Credit.


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