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William Perez

Active-Duty Reservists Get Tax Relief

By September 28, 2006

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The Pension Protection Act of 2006 provides significant tax relief to members of the military reserves. According to the IRS, "Military reservists called to active duty can receive payments from their individual retirement accounts, 401(k) plans and 403(b) tax-sheltered annuities, without having to pay the early-distribution tax."

Reservists who were called to active duty after September 11, 2001, and who withdrew money from a retirement account, can seek a refund of the 10% tax penalty on early distributions. Reservists can also re-contribute the withdrawn funds within two years after the end of their active duty. To claim the refund or to report a re-contribution, reservists will need to file an amended tax return on Form 1040X, and write the words "active duty reservist" at the very top of their tax return.

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Comments
March 30, 2009 at 2:13 am
(1) James layne says:

Mr. Perez,
I was a reservist activated on Sept. 11, 2001 and because of the difference in my active duty pay and my civilian pay I had to pull my 401K benefits from my civilian employer in order for me to survive while I was on active duty for 2 years. I am being told by IRS that the Pension Protection Act (IR-2006-152) of 2006 does not qualify for me to file an amended return when I pulled the money out in 2002. I am over their 3 year rule for amended returns. It is my understanding that this Act made the rule for reservist retroactive to 2001. If the Act came out in 2006 how is any reservist going to file an amended return for 2001 or 2002? I need your guidance on this as I have been dealing with this for almost 2 years now.
Thanks…I am currently overseas and your promptness to answer this question would be appreciated.

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