Heroes Earned Retirement Opportunities Act (HERO)

Heroes Earned Retirement Opportunities Act - HERO is Legislation passed by Congress on May 18, 2006, that allows tax-free combat-related compensation received by military personnel to be considered taxable income for IRA contribution purposes. Military personnel can also make IRA contributions based on combat pay earned from January 2004 to May 2006 - up to two years before the act became law.

Previous to the act's creation, military personnel who primarily received combat pay as their main source of compensation would not be able to contribute to an IRA. Because combat pay is not considered taxable and IRA regulations stipulate that the maximum IRA contribution is the lesser of either $5,500 or the amount of taxable income received, the maximum contribution allowed was effectively zero dollars.

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."

That taxable income can then be put into an IRA. Under IRS rules, in 2018 any individual who has an earned income during a particular year may contribute $5,500 or the investor's taxable compensation for the year, whichever is less, to Traditional or Roth IRA accounts after meeting certain salary requirements, discussed below.

Contributions to Traditional IRAs are tax deductible if certain conditions are met. First, the IRA owner may not be covered by an employer-sponsored retirement plan. The account holder must also meet modified adjusted gross income (AGI) requirements below a certain salary amount, depending on whether he or she is single or married. In 2013, an investor may contribute up to $5,500 to a Traditional IRA account. This amount may then increases in $500 increments per year thereafter, indexed to the cost-of-living adjustment (COLA).

For members of the military, the IRA can be a key part of their financial security later in life, in addition to their military pension.