Heroes Earned Retirement Opportunities Act

From TaxAlmanac

U.S. Congress

On May 18, 2006, Congress passed the Heroes Earned Retirement Opportunities Act (H.R. 1499). President Bush is expected to sign the legislation into law.

Summary

The HERO Act treats tax-free combat pay as taxable compensation for the purpose of making annual IRA contributions.

The provision is effective for contributions made after December 31, 2003 – providing our troops with up to $70 million in tax benefits over the next 10 years.

Background

Current law may prohibit troops from saving in an IRA. Generally, contributions to an Individual Retirement Account (IRA) are limited to the lesser of $4,000 (in 2006) or the individual’s taxable compensation. Combat pay is tax-free. As a result, members of the military who receive combat pay as their only source of compensation are not allowed to contribute to an IRA (because their taxable compensation is zero). This current-law rule may limit or prohibit IRA savings for men and women in uniform.

Legislative History

H.R. 1499 was introduced by Rep. Foxx (NC) on April 6, 2006. The bill was referred to the Ways and Means Committee but was not considered. On May 23, 2005, the House agreed to H.R. 1499, under suspension of the rules, and passed the bill, as amended, by a voice vote. S.601 passed the Senate with an amendment by Unanimous Consent on November 15, 2005.