What Is the Heroes Earned Retirement Opportunities Act (HERO)?

The Heroes Earned Retirement Opportunities Act (HERO) is a 2006 law that allows military personnel to fund their retirement savings with combat pay. It is a tax break designed for those who have served in combat zones.

Under the law, combat-related compensation paid since January 2004, although otherwise tax-free, will be treated as taxable income if it is paid into an Individual Retirement Account (IRA).

Understanding the HERO Act

Previous to the act's passage, military personnel whose main source of compensation was combat pay would not be able to contribute to an IRA. This was because combat pay is not ordinarily taxable and only income that is taxable can be contributed to an IRA. If a person's entire income was earned in a combat zone, that person had zero taxable income.

The act passed on May 18, 2006, fixes this Catch-22 and backdates the change to January 2004 for those affected.

Now, military personnel can create an IRA and fund it with combat pay, up to the annual limits set by the IRS.

For 2019 and 2020, the limit is $6,000 per year. People age 50 and over can add another $1,000 a year as a "catch-up contribution."

About Combat Zones

According to the Internal Revenue Service, "to qualify for combat-related tax benefits, you must be an eligible member who meets one of the following options with service in an area. 

  • Option 1. Service in an active combat area as designated by Executive Order, and…Receive special pay for duty subject to hostile fire or imminent danger as certified by the Department of Defense. 
  • Option 2. Service in a support area as designated by the Department of Defense in direct sustainment of military operations in the combat zone, and…Receive special pay for duty subject to hostile fire or imminent danger as certified by the Department of Defense. 
  • Option 3. Service in a contingency operation as designated by the Department of Defense, and…Receive special pay for duty subject to hostile fire or imminent danger as certified by the Department of Defense."

Traditional and Roth IRAs

With the passage of this law, combat veterans can create either a traditional or Roth IRA account and contribute up to the annual limit. If you prefer, you can create both types of accounts and split the money up.

With a traditional IRA, no taxes are due until the account holder makes a withdrawal, presumably after retiring. With a Roth IRA, the income taxes on the amount paid in are due in that tax year, but the proceeds are tax-free down the road.