Heroes Earned Retirement Opportunities Act - HERO

When military personnel are sent to potentially dangerous places to do potentially dangerous things, they'll often receive combat pay on top of standard pay. Combat pay is non-taxable. This is great, because they don’t have to report it or pay income taxes on it, but it’s not great if they're trying to save for retirement. That’s because IRA contributions are limited: they can either put $6,000 into it a year or a portion of their taxable income, whichever is less. So if their combat pay isn’t taxable, they can’t count it toward their IRA contribution.

Or at least, they couldn’t. But those dark days are all in the past, because in 2006, Congress passed the Heroes Earned Retirement Opportunities Act, or HERO Act. This act basically made it so military personnel could count their combat pay toward traditional or Roth IRA contributions. Not only that...it allowed them to make contributions for 2004 and 2005 as well, if they so desired. It’s nice that we offer our military personnel an income-tax-free financial reward as a thank-you for combat service. We didn’t want to then turn around and slap them in the face with it by telling them they couldn’t use it to save for their futures.