When a service member dies, his or her death gratuity can be rolled over to certain qualifying external accounts, namely a Roth IRA retirement account or a Coverdell education savings account.

A military death gratuity and amounts received under the Service members' Group Life Insurance (SGLI) program may be rolled over to either a Roth IRA or Coverdell account without regard to the Roth or Coverdell contribution limits that otherwise apply. (Code Sec. 408A(e)(2) and Code Sec. 530(d)(9))

The rollover must be made no later than one year after the date on which the military death gratuity or SGLI payment is received. The maximum amount that can be contributed to a Roth IRA or Coverdell Savings Account is limited to the sum of the military death gratuity and SGLI payments that the individual receives. (Heroes Earnings Assistance and Relief Tax Act of 2008 § 109(d)(1))