Making it in the MilLife

We recently held a Military Spouse Symposium in Virginia Beach. Over 120 spouses and others working in the field of military spouse and family issues were in attendance to network and hear about programs, services and legislation that exist to support them. MOAA’s own Certified Financial Planner (CFP), Phil Dyer delivered a new presentation that was very well received – a military and financial benefits update. Everyone in attendance was writing feverishly as he spoke, making notes of things they either didn’t know or had forgotten along the way. It made me wonder what we all may not know or remember about deployments…

As most of you know, military pay received while deployed in a combat zone or other qualifying hazardous duty area is tax-free. But what specific rules apply? Here’s a quick refresher course, which summarizes how you can take advantage of these savings opportunities.

All pay received (including base pay, special pays, and bonuses) is income tax-free up to the maximum enlisted pay rate of $6,381.90 per month, plus imminent danger pay. Combat zone re-enlistments are income tax-free, regardless of whether the money is actually received while in a combat zone or not.

Thrift Saving Plan (TSP) contributions made while in a combat zone are not taxed on withdrawal or distribution.

Due to the Heroes Earned Retirement Opportunities (HERO) Act of 2006, servicemembers who were deployed in a combat zone or other qualifying hazardous duty area have up until May 28, 2009, to make IRA contributions for tax years 2004 and 2005. If the servicemember qualifies for a deductible traditional IRA, this can result in a tax refund for contributions made. For those under 50, the IRA contribution limits are $3,000 for 2004 and $4,000 for 2005. For those over 50, the limits are $3,500 and $4,500, respectively. You will need to file Form 1040X, Amended Tax Return, to claim any benefit. For more information, visit www.irs.gov/newsroom/article/0,,id=161175,00.html.