Heroes Earned Retirement Opportunities (HERO) Act — Overview
The HERO Act is a federal law that lets qualifying military personnel use combat pay to fund individual retirement accounts (IRAs). Enacted in 2006 and applied retroactively to January 2004, the law removes a barrier that previously prevented service members whose pay was entirely tax-exempt combat compensation from contributing to IRAs.
Why it matters
Normal IRA rules require contributions be made from taxable earned income. Combat pay is often excluded from taxable income, so service members whose only compensation came from combat pay could not make IRA contributions. The HERO Act permits combat-related pay to be treated as compensation for IRA contribution purposes, enabling affected service members to save for retirement despite the tax exclusion.
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Who qualifies
To qualify, a service member must have received combat-related pay for service in an area or under conditions designated by the Department of Defense or the President. Typical qualifying scenarios include:
- Service in an active combat zone designated by Executive Order and receiving hostile-fire or imminent-danger pay.
- Service in a support area designated as directly sustaining operations in a combat zone, with hostile-fire or imminent-danger pay.
- Service in a statutorily designated Qualified Hazardous Duty Area, with hostile-fire or imminent-danger pay.
Certification of special pay by the Department of Defense is the usual evidence that pay is combat-related.
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How it works
- Combat pay that is excluded from taxable income can be used to fund either a traditional IRA or a Roth IRA (or split between both), subject to the usual contribution rules and limits.
- Contribution limits follow IRS annual limits. For example:
- 2022 limit: $6,000 (under age 50)
- 2023 limit: $6,500 (under age 50)
- Catch-up contribution for age 50 and older: additional $1,000
- Roth contributions still must meet Roth income eligibility rules; splitting between account types is allowed if overall contribution limits are not exceeded.
Tax implications
- Traditional IRA: contributions may be tax-deductible and earnings are tax-deferred until withdrawal.
- Roth IRA: contributions are made with after-tax dollars (taxes are paid in the year of contribution), and qualified withdrawals are tax-free.
The HERO Act simply permits the use of combat pay as qualifying compensation for contribution purposes; it does not change the standard tax treatment of traditional vs. Roth IRAs.
Practical considerations
- Verify that your combat-related pay is certified as such by the Department of Defense and that you meet the applicable area/service criteria.
- Confirm current IRS contribution limits and Roth income eligibility rules each tax year.
- Consider consulting a tax advisor or using IRS guidance (Publication 590-A and related resources) to determine filing steps and any elections required when applying combat pay toward IRA contributions.
Key takeaway
The HERO Act enables service members who receive tax-exempt combat pay to contribute to IRAs as if that pay were taxable earned income, removing a barrier to retirement saving for those serving in combat or hazardous duty areas.