HERO Act: Providing Financial Flexibility for Our Defenders
The Heroes Earned Retirement Opportunities (HERO) Act, established in 2006, is a pivotal law empowering military personnel to fund their Individual Retirement Accounts (IRAs) using combat pay received during their service. This legislation targets those who’ve bravely served in combat zones, granting them much-deserved financial advantages.
Key Benefits
- Strategic Use of Combat Pay: The HERO Act permits military personnel to allocate their combat pay—otherwise tax-free—toward Individual Retirement Accounts (IRAs).
- Overcoming Financial Barriers: Traditional IRA rules mandate taxable income for contributions. The HERO Act circumvents this by allowing tax-exempt combat pay to serve as a contribution base.
- Access to IRA Benefits: Military personnel can now use combat pay to fund their retirement savings, securing a supportive financial future post-service.
Understanding the Impact of the HERO Act
Prior to this transformative act, military members whose primary earnings stemmed from combat pay were disqualified from IRA contributions. Combat pay, being non-taxable, restricted the creation and funding of IRAs, be they Traditional or Roth IRAs. Essentially, personnel with exclusive combat pay faced zero taxable income, prohibiting IRA contributions.
Passed on May 18, 2006, the HERO Act retrospectively became effective from January 2004. Military individuals can now establish IRAs and contribute tax-free combat pay within annual IRS limits—$6,000 for 2022, rising to $6,500 for 2023, with an additional $1,000 catch-up contribution for those aged 50 and over.
Eligibility for Combat-Related Benefits
As outlined by the IRS, military personnel qualify for combat-related tax benefits by meeting any of the following conditions:
- Active Combat Duty: Serving in a combat zone designated by Executive Order and receiving special pay for duty in hostile or dangerous environments certified by the Department of Defense.
- Support Area Service: Assigned to support areas designated by the Department of Defense directly sustaining military operations in combat zones, with certification for hostile fire or imminent danger pay.
- Qualified Hazardous Duty Area: Deployed to statutorily designated hazardous duty zones, receiving certified special pay for dangerous duties.
Special Considerations for IRAs
Blessed by this legislation, combat veterans can choose between Traditional IRA or Roth IRA accounts, or even split contributions between both, adhering to respective income and contribution criteria. Here’s what to know:
- Traditional IRA: Taxes are deferred until withdrawal, typically after retirement.
- Roth IRA: Taxes on contributions are paid in the current year, but withdrawals during retirement are tax-free.
With the HERO Act, our nation’s defenders are assured a fortified and dignified future, leveraging their earnest income to build a secure retirement nest.
Related Terms: Individual Retirement Account (IRA), Roth IRA, Traditional IRA, Combat Pay, Military Compensation
References
- Internal Revenue Service. “Tax Exclusion for Combat Service”.
- U.S. Congress. “H.R.1499 - Heroes Earned Retirement Opportunities Act: Summary”.
- Internal Revenue Service. “Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)”, Pages 6, 38.
- U.S. Congress. “H.R.1499 - Heroes Earned Retirement Opportunities Act: Actions”.
- Internal Revenue Service. “401(k) Limit Increases to $22,500 for 2023, IRA Limit Rises to $6,500”.
- Internal Revenue Service. “Retirement Topics - IRA Contribution Limits”.
- Internal Revenue Service. “Combat Zones”.
- Internal Revenue Service. “Traditional and Roth IRAs”.
