HEROs Act Passed by Senate

The  bill is an amendment to the Internal Revenue Code of 1986 which allows troops in a combat zone to place money into a tax-deferred retirement account such as an IRA.   The Army Times reports that Representative Virginia Foxx (R-North Carolina) said she introduced the bill after hearing about problems encountered by a soldier who tried to put some combat zone earnings into an IRA but was blocked because tax law doesn’t allow tax-free earnings to be deposited into tax-deferred savings accounts.

Thebill allows taxed and tax-free money to be mingled without endangering the tax-free status of military pay earned in a combat zone.

The military has a special combat zone savings plan, known as the Savings Deposit Program, which allows up to $10,000 to be saved during a deployment, with the government promising 10% interest, according to the Army Times. The money has to be withdrawn from the savings within 90 days after the service member leaves a combat zone.   Service members in a combat zone can also contribute to the federal Thrift Savings Plan, which allows taxed and untaxed money to be mixed.   But some service members, especially National Guard and reserve members who have used regular IRAs, Roth IRAs or other tax-deferred savings, would prefer to keep or create non-government savings.

The House and Senate still need to work out an effective date for the bill.   The House, which passed the bill in March, set the effective date as December 31, 2004, allowing for contributions for the 2005 tax year.   The Senate has set the effective date as December 31, 2003, allowing for retroactive contributions.