Heroes Earned Retirement Opportunities (HERO) Act

One of the requirements of establishing and contributing to an individual retirement account (IRA) is that the contributions are made from taxable earned income. This is true for both the traditional and Roth IRA. This stipulation is in place for all taxpayers; however, exceptions are made for military service members who are on active duty.…
Advertising Disclosure.

Advertiser Disclosure: Opinions, reviews, analyses & recommendations are the author’s alone. This article may contain links from our advertisers. For more information, please see our Advertising Policy.

default image

One of the requirements of establishing and contributing to an individual retirement account (IRA) is that the contributions are made from taxable earned income. This is true for both the traditional and Roth IRA. This stipulation is in place for all taxpayers; however, exceptions are made for military service members who are on active duty. Because combat pay is tax-free, service members who spent an entire calendar year in a designated tax-free zone were previously not permitted to contribute to IRAs because they did not have “earned income.” But that was before the Heroes Earned Retirement Opportunities Act was signed into law. The HERO Act, as it is now known, allows military members to contribute to IRAs even if their sole source of income is tax-free combat pay and other non-taxable income.

What is the Heroes Earned Retirement Opportunities (HERO) Act

The HERO Act was signed into law on Memorial Day 2006, allowing military service members receiving combat pay to use that income as contributions toward IRAs. Before this legislation, service members who received all of their income from tax-free combat pay were ineligible as contributors to a traditional or Roth IRA. Once the legislation was signed, service members were able to not only begin making contributions to their retirement accounts but also amend previous tax returns (retroactive two years) to make and include contributions from previous years.

How the HERO Act Benefits Military Members

The HERO Act benefits members of the military by offering them the same opportunities to save toward retirement as other working Americans. Military service members can choose to make contributions to a traditional or Roth IRA, as well as the federal government-sponsored Thrift Savings Plan. To better understand how this opportunity benefits service members, consider the benefits of these retirement plans.

Benefits of a traditional IRA. The main benefit of the traditional IRA is that contributions you make to your retirement account can be used as a tax deduction when you file your income tax return. This tax-deferred option allows your money to grow over the years. The main drawback of the traditional IRA is that you will pay income tax at the time of distribution.

Benefits of a Roth IRA. The Roth IRA is similar to the traditional IRA, but they are taxed differently. Contributions to the Roth IRA are included in the amount of earned income you report on your tax return. Essentially, this means you are paying tax on that money at the time of contribution. The benefit, of course, is that your money grows tax-free because you can withdraw contributions and earnings without taxation after you reach the age of 59 1/2.

The HERO Act Gives Military Members Investing Opportunities

Clearly the biggest benefit of the HERO Act is that members of the military are no longer excluded from some of the best retirement vehicles available to American citizens. Saving for retirement is essential to ensure the financial independence of individuals and families once they are no longer earning an income from employment. In allowing service members the opportunity to take advantage of the benefits of IRAs as well as the Thrift Savings Plan, the HERO Act provides financial security for those who have answered the call of duty.

About Post Author

Get Instant Access
FREE Weekly Updates! Enter your information to join our mailing list.

About Ryan Guina

Ryan Guina is The Military Wallet's founder. He is a writer, small business owner, and entrepreneur. He served over six years on active duty in the USAF and is a current member of the Illinois Air National Guard.

Ryan started The Military Wallet in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about personal finance and investing at Cash Money Life.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free Personal Capital account here.

Featured In: Ryan's writing has been featured in the following publications: Forbes, Military.com, US News & World Report, Yahoo Finance, Reserve & National Guard Magazine (print and online editions), Military Influencer Magazine, Cash Money Life, The Military Guide, USAA, Go Banking Rates, and many other publications.

Reader Interactions

Leave A Comment:


About the comments on this site:

These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

The Military Wallet is a property of Three Creeks Media. Neither The Military Wallet nor Three Creeks Media are associated with or endorsed by the U.S. Departments of Defense or Veterans Affairs. The content on The Military Wallet is produced by Three Creeks Media, its partners, affiliates and contractors, any opinions or statements on The Military Wallet should not be attributed to the Dept. of Veterans Affairs, the Dept. of Defense or any governmental entity. If you have questions about Veteran programs offered through or by the Dept. of Veterans Affairs, please visit their website at va.gov. The content offered on The Military Wallet is for general informational purposes only and may not be relevant to any consumer’s specific situation, this content should not be construed as legal or financial advice. If you have questions of a specific nature consider consulting a financial professional, accountant or attorney to discuss. References to third-party products, rates and offers may change without notice.

Advertising Notice: The Military Wallet and Three Creeks Media, its parent and affiliate companies, may receive compensation through advertising placements on The Military Wallet; For any rankings or lists on this site, The Military Wallet may receive compensation from the companies being ranked and this compensation may affect how, where and in what order products and companies appear in the rankings and lists. If a ranking or list has a company noted to be a “partner” the indicated company is a corporate affiliate of The Military Wallet. No tables, rankings or lists are fully comprehensive and do not include all companies or available products.

Editorial Disclosure: Editorial content on The Military Wallet may include opinions. Any opinions are those of the author alone, and not those of an advertiser to the site nor of  The Military Wallet.