WASHINGTON - 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, according to the Internal
Revenue Service.
The newly-enacted Pension Protection
Act of 2006 eliminates the 10-percent early-distribution
tax that normally applies to most retirement
distributions received before age 59½. The new law
provides this relief to reservists called to active duty
for at least 180 days or for an indefinite period.
Eligible reservists activated after
Sept. 11, 2001, and before Dec. 31, 2007, qualify for
relief from this tax. This tax is often referred to as
the 10-percent early-withdrawal penalty. Regular income
taxes continue to apply to these payments in most cases.
Early distributions from both Roth
and traditional IRAs received by a reservist while on
active duty qualify for this relief. Likewise, a
reservist’s elective contributions and earnings
distributed to him or her by employer sponsored 401(k)
plans and 403(b) tax-sheltered annuities also qualify
for this relief.
Because this relief is retroactive,
eligible reservists who already paid the 10-percent tax
can claim a refund by using Form 1040X to amend their
return for the year in which the retirement distribution
was received. Eligible reservists should write the
words, "active duty reservist," at the top of the form.
In Part II Explanation of Changes, the reservist should
write the date he or she was called to active duty, the
amount of the retirement distribution and the amount of
early-distribution tax paid.
Reservists can choose to
re-contribute part or all of these distributions to an
IRA. Ordinarily, these special contributions must be
made within two years after the reservist's active-duty
period ends. However, if the reservist's active duty
ended before Aug. 17, 2006 (the date the new law was
enacted), he or she will have until Aug. 17, 2008, to
make these special contributions. No deduction is
available for these contributions.
Issue Number: IR 2006-152
