Tax relief: HEART Act of 2008

On June 18, 2008, President Bush signed into law the "Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008." This legislation contains many types of tax relief for military personnel, and specifically offers tax-related benefits associated with employer-sponsored retirement plans, IRAs and Coverdell Education Savings Accounts (ESAs). Here is a general overview for selected tax provisions of this legislation:

Defined Contribution Plans and IRAs

Qualified reservist distributions: The temporary provision of the Pension Protection Act (PPA) of 2006 that allows qualifying reservists to take penalty-free retirement plan and IRA withdrawals, and later re-contribute these amounts to IRAs, is made permanent. This change is effective Jan. 1, 2008.

Differential pay: Effective Jan. 1, 2009, employer-provided differential pay (the difference between pre-service civilian pay and the military pay of employees who go on active duty) will be treated as wages for retirement plan purposes, thus allowing - among other things - elective deferrals to a 401(k) plan with respect to such compensation.

401(k) and 403(b) distributions

Effective Jan. 1, 2009, active duty military personnel will be treated as severed from employment for purposes of allowing 401(k) and 403(b) plan distributions while on active duty; although, no elective deferrals or other employee contributions are permitted for six months following any such distribution.

Roth IRAs and ESAs

Military death gratuity or Servicemembers' Group Life Insurance (SGLI) payment: An individual who receives payments may contribute the amount received to a Roth IRA or to one or more ESAs on a tax-free basis. Amounts contributed to a Roth IRA or ESA from the military death gratuity or SGLI payments are treated as qualified rollover contributions.

Individuals receiving payments with respect to deaths as a result of injuries occurring prior to June 18, 2008, have until June 18, 2009, to make qualified rollover contributions into Roth IRAs or ESAs from these proceeds.

Individuals receiving payments with respect to deaths as a result of injuries occurring on or after June 18, 2008, have one year after receipt of the payment to make the Roth or ESA rollover contribution(s).

Defined Contribution Plans

Survivor or disability payments: A tax-qualified plan must provide that, in the case of a participant who dies while performing qualified military service, the survivors of the participant are entitled to any additional benefits that would be provided under the plan had the participant resumed employment with the employer maintaining the plan and then terminated employment on account of death.

This change has the effect of ensuring that the participant's survivors receive the same death benefits they would have received had the participant been actively employed at the time of his or her death. This provision applies to deaths and disabilities occurring on or after Jan. 1, 2007. A plan must be amended on or before the last day of the plan year beginning on or after Jan. 1, 2010.