The Internal Revenue Service wants to update the rules that govern efforts by activated members of the Guard and Reserve to contribute to their civilian employers’ 401(k) plans.[@@]

The IRS has included the proposed changes in a package of updates to Section 415 of the Internal Revenue Code. The section deals with limits on contributions to and benefits from retirement plans that qualify for special tax breaks.

One section, for example, would make it clear that ordinary defined contribution plan contribution limits apply to retirement medical accounts as well as to other types of individual retirement plan accounts.

Other sections address issues such as the application of the defined benefit limit when an employee receives multiple benefit streams beginning at different ages and the treatment of compensation paid after an individual leaves a job.

But the IRS and its parent, the U.S. Treasury Department, are emphasizing a section that would give members of the Guard and Reserve the ability to continue to contribute to their employers’ retirement plans while on active duty.

“We believe it is important that members of the National Guard and Reserve not lose the opportunity to save for retirement while they are serving their country,” says Eric Solomon, Treasury’s acting deputy assistant for tax policy.

Proposed rules relating to post-termination compensation and clarifications on activated citizen soldiers’ ability to contribute to 401(k) retirement plans also will apply to Section 403(b) tax deferred annuities and Section 457 eligible deferred compensation plans, according to IRS and Treasury officials.

The proposed regulations are scheduled to take effect in 2007, and the IRS will holding a hearing on the proposed rule in Washington Aug. 17. But plan administrators already can rely on the proposed changes to allow activated employees to contribute to qualified retirement plans, officials say.

Written comments are due July 25, and requests to speak at the public hearing are due July 27.

Officials are asking specifically for comments on ways to make the proposed regulations easier to understand.

The proposed rule is on the Web at http://www.treasury.gov/press/releases/reports/13024104.pdf