Military tax benefits bill signed into law

Military reservists are now able to cash out health care flexible spending accounts and may withdraw funds from 401(k) or other contribution plans without penalty.

On June 17, 2008, President Bush signed the Heroes Earnings Assistance and Relief Tax Act of 2008 (H.R. 6081), permitting active duty reservists to make penalty-free withdrawals from retirement plans, when called to serve at least six months. It also allows any differential military pay to be included in the calculation of wages for retirement plan purposes and allows employers to report the differential military pay on the W-2.

The law also modifies the Uniformed Services Employment and Reemployment Rights Act (USERRA) for the purposes of triggering the payment of qualified plan benefits, and allows recipients of military death benefit gratuities to roll over the amounts received, tax-free, to a Roth IRA or a Coverdell education savings account.

The modifications also allow reservists called to active duty for at least 180 days to withdraw any remaining balances in their health care flexible spending accounts. Before this law, most employees called to duty would forfeit any remaining money in their health care accounts.

Military tax benefits bill signed into law