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House, Senate Pass Bill Allowing Military Personnel to Contribute Combat Pay to IRAs
Washington, DC, May 22, 2006 - The House of Representatives and the Senate recently passed H.R. 1499, the Heroes Earned Retirement Opportunities (HERO) Act, which allows certain combat pay to be treated as income for purposes of limits on contributions to IRAs. President Bush is expected to sign the bill into law.
Under the Internal Revenue Code, contributions to a traditional or Roth IRA cannot exceed the lesser of the dollar limit in effect for the year ($4,000 for 2006, or $5,000 for catch-up eligible individuals), or the individual’s compensation includible in gross income for that year. The Code also states that gross income does not include compensation paid for active duty military service received when a member of the armed forces is either serving in a designated “combat zone” or hospitalized as a result of combat zone wounds, disease, or injury.
The HERO Act amends the Code to provide that a member of the armed forces whose only compensation during a year is combat pay excludable from gross income could still make a contribution to a Roth IRA for that year.
The HERO Act is effective for taxable years beginning after December 31, 2003.
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