Posted on October 04, 2006 at 17:36:25:
A recently passed law offers members of the armed forces a chance to boost their retirement funds. It now treats combat pay – already tax exempt – as compensation for IRA contribution purposes. Earlier, soldiers were prohibited from making IRA contributions if their wages consisted only of combat pay.
More good news: the option is retroactive, so members of the military can make IRA contributions for the years 2004 and 2005 as late as May 28, 2009.
What kind of IRA? Best bet for most would probably be a Roth IRA. Since combat pay is tax-exempt, soldiers won’t need to deduct their contributions, unless they need a cash refund now for taxes paid. For almost anyone else, a Roth IRA is a better deal tax-wise: withdrawals are tax-free (unlike regular IRA withdrawals, which are taxed as ordinary income); and there are no mandatory distribution requirements later on, so funds can be bequeathed to family members for long-term appreciation.