HERO Act and Divorce Division

Posted by RP

September 9, 2006

Another Really Nice Tax Law Change

The HERO Act allows retroactive IRA contributions to both traditional and Roth IRAs for those service members and their spouses, if applicable, who are serving in combat zones. The HERO Act allows IRA contributions for years 2004 and 2005. These IRA retroactive contributions can be made as late as May 29, 2009. Even those service members with nontaxable combat pay are eligible. The funds can come from anybody, including friends and relatives.

Before the HERO Act, military members receiving combat pay were required to have a certain amount of income before IRA contributions could be made. Many service members whose income was not high enough were restricted or limited in making IRA contributions under the old law. Combat pay still is not subject to income tax… Full Article Here

It’s a sad fact of life that many divorces involving military couples happen at the end of stressful times such as combat service. Especially with young couples, when the family has been separated due to overseas duty, there isn’t very much “in the pot” for division of assets. If the couple hasn’t been married for enough years the non-member spouse may not even get to share in a future military retirement.

One little aspect of the new tax and pensions laws, the so-called HERO Act may give both parties a little help if they are willing to look to the future rather tan just scrambling to split the last of the few dollars available.

It looks to me as if one appropriate strategy might be to have both spouses take advantage of this act and establish “after the fact” IRAs with whatever money they have available. As an example, the member spouse my be looking at a reenlistment bonus payment in the near future. Properly applied such one time windfalls could help both parties come out of the marriage in better shape for the future. As always,

Disclaimer

As always remember that this site, although written by a retiree with substantial experience in the school of hard knocks, it is for personal, lay opinions and informational purposes only. If you have a legal question you should seek help from a legal professional. If you have questions involving current or future values of pensions you need an actuary or competent pension valuation expert. If your questions are tax-related, seek a competent tax advisor. In other cases, I recommend the base chaplain.

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