Tax Tip of the Week
November 6, 2006

The amount you can contribute to an IRA is generally limited to your taxable compensation. Until now, combat pay, which is tax-free, didn't count as compensation for this purpose. That effectively prevented many members of the military serving in combat areas from making IRA contributions.

The legislation applies the rule back to 2004 and 2005. That means military personnel who received combat pay in those years can go back and make retroactive IRA contributions. And they have until May 28, 2009, to do it.

You don't report Roth IRA contributions on your tax return, so members of the military making retroactive contributions to a Roth won't need to file any amended returns. But if they contribute to a traditional IRA for 2004 or 2005, they'll have to file an amended return.

In some cases, that could result in an additional tax refund. Making an IRA contribution may qualify the taxpayer for the "saver's credit" of up to $1,000. (Income limits apply.)

If you or someone you know earned combat pay since 2004, please contact our office. We can advise you how to maximize your IRA savings and what forms you may need to file.

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