Benefit Fact Sheet
The Heroes Earnings Assistance and Relief Tax Act of 2008 (The HEART Act) provides tax and pension benefits to service members who are disabled while on active duty for more than 30 days and to their survivors if they die on active duty.
The HEART Act requires employers and sponsors of qualified defined benefit and defined contribution plans, such as 403(b) arrangements, and section 457(b) education plans to treat service members as being reemployed by the sponsor company for purposes of entitlement. The purpose of this is to provide service members and their survivors for benefits they may not otherwise have been entitled for.
The benefits of the HEART Act depend on the specific benefits of the employer's plan documents and may include:
- Accelerated vesting in retirement plans
- Additional life insurance benefits
- Survivor benefits, such as investment of Death Gratuity and Servicemembers Group Life Insurance (SGLI) payments into Roth IRAs and Coverdell education savings accounts without ordinary limitations
All service members and their survivors may benefit from The HEART Act.
Pension Benefits
The HEART Act adds provisions to USERRA requiring qualified retirement plans to provide that, in cases in which participants cannot return to their previous employment due to death or disability that occurred while serving on active duty, they or their survivors are entitled to any additional death or disability benefits 
normally available only to current employees. These additional benefits are:
- Accelerated vesting in the retirement plan (but not any imputed additional benefit accruals for the period of military service)
- Additional life insurance benefits
- Other survivor's benefits depending on the benefits of the employer
Employers may (but are not required to) treat an individual who dies or becomes disabled while performing qualified military service as if the individual had resumed on the day before the death or disability. Employers must treat all individuals performing qualified military service on reasonably equivalent terms.
Any benefit accrual amounts must be determined on the basis of the individual's average actual employee contributions or elective deferrals for the lesser of:
- The 12-month period of service with the employer immediately prior to qualified military service, or
- The actual length of continuous service with the employer.
These additional benefits are applicable with respect to deaths and disabilities occurring on or after 1 January 2007.
Differential Wage Payments
Some employers choose to pay some or all of the compensation that a service member would have received from the employer during the service member's period of active duty had the employee not been called to active duty. Such payments, if made to employees who are called to active duty for more than 30 days, are referred to as "differential wage payments" and were not previously treated as wages for Federal employment tax purposes. Instead, they were treated as self-employment income on IRS Form 1099-MISC for which the member had to pay self-employment taxes. The HEART Act now requires that such payments be treated as wages for income tax withholding purposes after 31 December 2008 as IRS Form W2 income.
The purpose of this filing is so that the payments may be contributed to the employer's qualified retirement plan while the service member is on active duty.
Qualified Reservist Distributions from Retirement Plans
The HEART Act extends provisions of the Pension Protection Act of 2006 (PPA service members). These provisions permit service members called to active duty for periods of 180 days or more to take withdrawals from qualified retirement plans and Health Flexible Spending Accounts as if they had terminated employment.
These withdrawals are no longer subject to the 10% tax penalty that would otherwise apply. Service members who make withdrawals may not make new contributions to the plan for at least six months after taking the withdrawals. At any time during the two-year period beginning on the day after the end of the service member's active duty, the service member may re-contribute all or part of the distribution to an IRA (but not to the retirement plan from which the distribution was taken).
Survivor Benefits
For 2024, your total contributions to all of your traditional and Roth IRAs cannot be more than:
- $7,500 ($8,000 if you are age 50 or older), or
- Your taxable compensation for the year if your compensation was less than this dollar limit.
For 2023, the annual total contributions to all of your traditional and Roth IRAs cannot be more than:
- $6,500 ($7,500 if you are age 50 or older), or
- Your taxable compensation for the year if your compensation was less than this dollar limit.
Funds accumulated in qualified, employer-sponsored retirement plans may be "rolled over" upon termination of employment into traditional IRAs or Roth IRAs without limit. Withdrawals from traditional IRAs and qualified, employer-sponsored retirement plans are subject to income taxes in the year in which they are taken. Both are subject to early, 10% withdrawal penalties if funds are withdrawn prior to age 59-1/2, and both are subject to Required Minimum Distributions following the year in which the participant reaches age 70-1/2. Beneficiaries of IRAs and qualified retirement plans (other than surviving spouses) must pay taxes on the inherited amount. Distributions from Roth IRAs are free from both taxation and required minimum distributions. Withdrawals up to the amount invested (the principal) may be withdrawn tax-free at any time. The growth in a Roth IRA may be withdrawn tax-free after a "seasoning" period of five years. Beneficiaries of Roth IRAs are not required to pay taxes on the inherited amount.
The HEART Act permits the SGLI recipients who receive death gratuities and SGLI death benefits to invest some or all of the funds into a Roth IRA, thereby allowing the funds to grow tax-free, including when they are withdrawn or passed on their beneficiaries. Withdrawals are allowed, tax-free and without penalty, at any time up to the amount of the initial investment. The amount treated as a qualified rollover contribution to a Roth IRA cannot exceed the total amount of the military death gratuity and SGLI payments received, reduced by any portion of such amount contributed to a Coverdell ESA or another Roth IRA. Death gratuity and SGLI payments may be rolled over into a Roth IRA only if the contribution is made before the end of the 12-month period from when the beneficiary receives those payments.
Contributions made in accordance with the HEART Act may be withdrawn at any time NOT subject to IRS restrictions. However, any growth on those contributions is subject to IRS restrictions including possible taxes and penalties.
Example: If you contribute $50,000 to a Roth IRA and earn $5,000 on the account, you may withdraw up to the original $50,000 contribution without any taxes or penalties. The $5,000 in earnings may be subject to taxes or penalties if withdrawn early.
The HEART Act also permits the beneficiary to deposit death gratuity and SGLI payments into Coverdell Education Savings Accounts (ESAs). Distributions from Coverdell ESAs are, generally, tax-free to the extent that such funds are used for the beneficiary's qualified education expenses. Distributions that are not used for qualified education expenses are subject to penalties and taxation similar to those for qualified retirement plans. The amount treated as a qualified rollover contribution to a Coverdell ESA cannot exceed the total amount of the military death gratuity and SGLI payments received, reduced by any portion of such amount contributed to a Roth IRA or another Coverdell ESA.
Public Law 110-245, 17 June 2008 (The HEART Act):
https://www.govinfo.gov/content/pkg/PLAW-110publ245/pdf/PLAW-110publ245.pdf
IRS Notice 2010-15, 8 February 2010 (Miscellaneous HEART Act Changes):
https://www.irs.gov/irb/2010-06_IRB
Tax Information for Members of the Military:
https://www.irs.gov/individuals/military
IRS online "Individual Retirement Arrangements (IRAs)”:
https://www.irs.gov/retirement-plans/individual-retirement-arrangements-iras
Title 38, Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA):
https://www.dol.gov/agencies/vets/programs/userra
Federal Register 20 CFR Part 1002, 19 December 2005 (USERRA, As Amended):
https://www.govinfo.gov/content/pkg/CFR-2011-title20-vol3/pdf/CFR-2011-title20-vol3-part1002.pdf
Department of Labor (DOL) USERRA Advisor, Overview:
https://webapps.dol.gov/elaws/vets/userra/userra.asp
IRA Contribution Limits:
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
HEART Act: What beneficiaries need to know:
https://www.armyresilience.army.mil/survivor-outreach-services/pdf/HEART_Act_for_Beneficiaries-OCT_2023.pdf