What it is:
How it works/Example:
For example, let's assume that John is a 28-year-old Air Force reservist. He has been training one weekend a month plus an additional two weeks per year, per Air Force requirements, for the last five years. One day, he is called to active duty and is deployed for 9 months in Afghanistan. During that time, John is losing out on his paycheck from his regular job and begins to run short on cash. Because he is a qualified reservist, he John can make an early withdrawal from his IRA while he is on active duty to tide him over until he returns to his job. It is important to note that the withdrawals are taxable.
Reservists can be members of the Army National Guard, the Army Reserve, the Navy Reserve, the Marine Corps Reserve, the Air National Guard, the Air Force Reserve, the Coast Guard Reserve, or the Reserve Corps of the Public Health Service.
Why it matters:
Usually, the IRS penalizes investors who make withdrawals from their IRAs before age 59 1/2. Qualified reservists, however, avoid this penalty if they are called to active duty for more than 179 days and make the withdrawal while they are on active duty. The allowance is made according to the Heroes Assistance and Relief Tax Act of 2008.