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Congress “HEARTs” Rollovers for
Military Personnel
THE HEROES EARNING
Assistance and Relief Act of 2008 (HEART Act or Public
Law 110-245) has expanded retirement plan rollover
options for qualifying individuals serving in the
uniformed services. Financial advisors with practices in
areas that have a concentration of military personnel
and their families should be aware of these new rollover
opportunities, effective January 1, 2009.
New Service Member In-Service
Distributions Could Lead to Rollovers
Generally, elective deferrals under a 401(k), 403(b) or 457(b) plan
cannot be distributed prior to a plan participant
incurring a distribution-triggering event such as
attainment of age 59½ or leaving employment. Under
certain circumstances, however, retirement plans may
allow participants to receive distributions of their
account balances while they are still working. These
“in-service” distributions are, in most cases, eligible
for rollover IRAs.
As a result of the HEART Act, eligible service members may take
in-service distributions of their 401(k), 403(b) and/or
457(b) elective deferrals and/or after-tax
contributions. How is this possible? The HEART Act
allows plan sponsors to consider certain employees who
are on active duty for at least 30 days in the uniformed
services as “severed from employment” for purposes of
being able to take a plan distribution. The term
uniformed services means the Armed Forces, the Army
National Guard and the Air National Guard when engaged
in active duty for training, inactive duty training, or
full-time National Guard duty; the commissioned corps of
the Public Health Service; and any other category of
persons designated by the president in time of war or
national emergency (IRC Sec. 3401(h)(2)(a)).
Are there any restrictions to service member in-service
distributions? Yes, following the distribution, the
individual would be prohibited from making elective
deferrals or employee after-tax contributions to the
plan for a six-month period.
Early Distribution Penalty Waiver
The Heart Act also made permanent the exemption
from the 10-percent early distribution tax for qualified
reservist distributions from IRAs and salary
deferral-type employer plans. A qualified reservist
distribution is one that is made to a service member who
has been ordered or called into active duty after
September 11, 2001 for at least 180 days or more, or for
an indefinite period. To qualify, the individual must
1.
Be a member of the Army National Guard; U.S.
Army, Navy, Marine Corps, Air Force, or Coast Guard
Reserve; Air National Guard of the United States; or the
Reserve Corps of the Public Health Service; or
2.
Be a reservist; and
3.
Take the distribution during the period that
begins on the date he/she is called to duty and ends at
the close of the active duty period.
New Rollovers for Survivors of Military Personnel
In addition to having created new in-service distribution rollover
opportunities for uniformed service members, the HEART
Act allows beneficiaries of military personnel who
receive military death gratuity, and/or Servicemembers’
Group Life Insurance (SGLI) payments, to rollover the
amounts to Roth IRAs or Coverdell Education Savings
Accounts (ESAs). The HEART Act waives the conventional
rollover and contribution restrictions for these savings
arrangements. Consequently, military death gratuity
and/or SGLI payment recipients may roll over the amounts
received to Roth IRAs or Coverdell ESAs up to the
aggregate sum of the gratuity and SGLI payments.
Those who are entitled to complete rollovers of military death
gratuity or SGLI payments would include:
•
Spouses of deceased service members;
•
Parents of deceased, nonmarried service members; and
•
Guardians of children of deceased service members.
A military death gratuity is a one-time, non-taxable payment of up
to $100,000 that is made to surviving family members.
SGLI payments result from a group life insurance policy
offered by the Veteran’s Administration to service
members. The automatic coverage is $400,000. It is
available to uniformed service members, including
commissioned officers in Public Health Service and the
National Oceanic and Atmospheric Administration, cadets
and midshipmen of the service academies.
Service Members May Need Guidance
Most service members and their families are unfamiliar with the new
opportunities under the HEART Act, and the benefits that
may result from consolidating their assets via rollover.
The advantages could include:
▪
Tax-deferred (and potentially tax-free) earnings;
▪
Savings for education;
▪
Savings for retirement; and
▪
Beneficiary organization and consolidation.
Call Columbia Management Today
The Columbia Management Learning Center is a dedicated
resource focused on education, research and the
promotion of practical investment strategies. From
regulatory and legislative issues to demographic and
economic trends, we strive to be an integral partner to
individuals and advisors in the quest for retirement
success. We are committed to providing the latest
information and the most innovative solutions.
To discuss how you can take advantage of this dedicated
program, contact your Columbia Management Regional Sales
Consultant.
401(k) Distribution
877.894.3592
Clients should take into account any potential tax
consequences, as well as expenses, sales charges and/or
penalties for selling or buying investments before
initiating a rollover.
Columbia Management Group, LLC (“Columbia Management”)
is the investment management division of Bank of America
Corporation. Columbia Management entities furnish
investment management services and products for
institutional and individual investors.
This material is for educational purposes only. It
cannot be used for the purposes of avoiding penalties
and taxes. Columbia Management does not provide legal or
tax advice. Clients should consult a legal or tax
advisor for individual needs.
© 2008 Columbia Management Distributors, Inc.
One Financial Center, Boston, MA 02111-2621
800.426.3750
www.columbiamanagement.com
CRS-40/156250-0905 08/AR59764
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