Servicemembers' survivors could opt for tax-free benefit investment
June 15, 2008
YOKOTA AIR BASE, Japan — Among the many tax relief items included in the HEART Act is a provision that gives the survivors of fallen servicemembers the opportunity for tax-free investment of their military death benefits.
According to the bill, survivors would be able to roll over all or part of their $100,000 military death gratuity and $400,000 Servicemembers’ Group Life Insurance payment into a Roth IRA or Coverdell Education Savings Account even if the amount invested would put them over their annual contribution limit.
"It could be an amazing opportunity to create a tax-free legacy for the family of a servicemember who made the ultimate sacrifice," said June Lantz Walbert, a certified financial planner with USAA, a financial services firm serving the military community. "Never paying taxes on the earnings of those funds plus, in the case of a Roth IRA, the potential of passing it along from one generation to another is a beautiful thing."
Once the bill is enacted, investments must be made within a year of receiving death gratuity and SGLI payments. However, the HEART Act also permits for the investment of payments resulting from an injury-related death occurring on or after Oct. 7, 2001, and before the date of enactment of the provision, as long as they are made within one year of the bill taking effect. Walbert added that while a life can never be measured in terms of money, the act is a significant recognition of service by Congress.
"While this is a remarkable thing," she cautioned that survivors should consult with a financial planner to ensure they are making the right decision. "More often than not, the insurance and gratuity proceeds are needed for the surviving family’s daily lifestyle expenses."