Southport Magazine

Although the HEART Act passed in 2008, it still matters to military families today. Officially the Heroes Earnings Assistance and Relief Tax Act, it created new tax benefits for military personnel. These benefits relate to retirement and education savings plans that servicemembers may have from jobs they held prior to joining the military or while they were waiting to be deployed.

One of the first provisions affects reservists who go on active duty. In most cases, they will take a pay cut when they become full-time military employees. If they take withdrawals from their traditional IRA’s or employer retirement plans, they may not have to pay the 10 percent tax penalty, and they are often allowed to re-contribute these amounts.

If their employer offers differential pay—a check for the difference between their civilian pay and their full-time military pay—that can be treated as wages for retirement plans, so the reservist can still participate in the employer’s 401(k) plan or other retirement offering.

Although some civilian employers will hold jobs open for employees who go on active military duty, the HEART Act gives military personnel the ability to act as though they have left their jobs in order to take distributions from 401(k) or 403(b) plans, which may ease life for family back home. If they decide to do this, though, they can’t make any new contributions to the plan for at least six months after taking money out.

Some of the other provisions of the HEART Act apply if a servicemember dies or becomes disabled. If a participant in an employer-provided defined contribution plan, such as a 401(k) or 403(b) plan, dies while performing qualified military service, the survivors will receive the same benefits they would have been entitled to if the participant were still working at the company.

A servicemember’s death also affects Roth IRA or Coverdell Education Savings Account contributions. Any payments that the survivors receive from the military death gratuity or from Servicemembers’ Group Life Insurance can be contributed to a Roth IRA or to one or more education savings accounts on a tax-free basis. Those funds will be treated as qualified rollover contributions for tax purposes.

These tax benefits have a big effect on those who are eligible. The IRS posts changes to its website to help people who are affected stay informed of these benefit changes. For more information, visit www.IRS.gov.