what is a qualified reservist 
a qualified reservist is a member of the military reserve who is not active but when called to duty is eligible to make an early withdrawal from a retirement account without incurring the usual early distribution penalty under most circumstances the irs imposes a penalty of 10 on the taxable amount withdrawn from a retirement account by a taxpayer younger than 59 years old qualified reservists are rare exceptions to this rule 1 still their withdrawals are subject to federal and state taxes to qualify reservists must be ordered or called to active duty after sept 11 2001 for more than 179 days or an indefinite period distributions need to be either from an individual retirement account ira or from employees elective deferrals to a 401 k 457 or 403 b also distributions must be during the period of active duty 2certain rules allow reservists to repay retirement account distributions during the two year period when active duty ends even if the repayment contributions exceed annual contribution limits understanding qualified reservistsqualified reservist rules are fairly recent enacted as part of the pension protection act of 2006 3 initially the rules only applied to active reservists on dec 30 2007 or before however the 2008 heart act or heroes earnings assistance and relief tax act extended the rules for qualified reservists going forward 4the heart act gave u s service members and their families many forms of financial assistance as a further means of thanking and compensating them for their service the heart act contains several provisions designed to allow service members and reservists to make a smooth financial transition both into active duty and then back into their civilian lives pros and cons of being a qualified reservistserving in the reserves can present financial hardships married couples with kids for instance face unexpected childcare costs when one or both adult family members are called into active duty overseas as with many of the heart act provisions qualified reservist rules provide additional financial flexibility for reservists if there is a trade off it s that there are important restrictions for example service member employees cannot make further elective contributions to their retirement plans after the date of distribution 5 this can have a negative impact on a potential retirement nest egg perhaps the biggest disadvantage of the qualified reservist rules is that missing even a single year of savings in a 401k or ira can make a difference in retirement this is especially true early in the retirement savings process as the money taken out will not have a chance to compound over multiple years for this reason even a withdrawal of a few thousand dollars as allowed for qualified reservists can cost 10 000 or more over several decades 