The HEART Act: Heroes Earnings Assistance and Relief Tax Act

August 26, 2018

Following the tragedy of September 11, 2001, our U.S. military has been continuously engaged in the war on terror to defend the freedom of its citizens. And since that time, thousands of our brave heroes have paid the ultimate sacrifice to defend our freedom and way of life. As a result, the U.S. government, has at times, made law that is specifically designed to help the surviving family members of fallen soldiers. The HEART Act is just such a law.

The HEART Act was introduced under President George W. Bush and provides 3 basic benefits:

    • Accelerated vesting in retirement plans
    • Additional life insurance benefits
  • Survivor benefits, such as investment of Death Gratuity and Service members Group Life Insurance (SGLI) payments into Roth IRAs and Coverdell education savings accounts without ordinary limitation

Source: Search term: “The HEART Act.”

Survivor Benefits and the use of the Roth IRA

For survivors of service members who fall while on duty, there exists a specific provision of the HEART Act that may permit the survivor to transfer a lump sum “military death gratuity” into a Roth IRA or an educational savings account.

You might wonder why this is advantageous.

When an individual receives proceeds from a life insurance policy, it is usually received free from income tax (Exceptions apply. Please consult a tax professional). However, if the proceeds are invested, the interest or dividends would normally be taxable. Additionally, a Roth IRA normally has a maximum annual contribution of $5,500/year and is dependent on a variety of qualifying facts such as earned income. But through the HEART Act, the lump sum military death gratuity may be transferred as lump sum into a Roth IRA. Consequently, the dividends, interest, and growth would be treated as tax-deferred. And as long as the investor permitted the Roth to age for 5 years and delayed withdrawals until after age 59 ½, the distributions from the Roth would be treated as income-tax free.

Obviously, careful planning would be the order of the day here. Because the surviving family may also need access to funds before retirement. And those funds might be better suited for a FDIC-protected bank product. However, by making a lump-sum transfer under the HEART Act, the survivor may be making a big down payment on his or her retirement planning for the future. And I’m pleased that the HEART Act is so forward-thinking as to provide a special tax-incentive provision for the benefit of surviving military family members.

To read more about the Heart Act, click here to be redirected to the My Army Benefits website.

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