Close Close

Financial Planning > Tax Planning

Military Advice

Your article was successfully shared with the contacts you provided.

The Heroes Earnings Assistance and Relief Tax Act of 2008 implements numerous changes to the federal tax code that benefit military personnel and their families. But the new law has received little attention in the mainstream media and may still be under the advisor radar on a national level.

When Rep. Richard E. Neal (D-Mass.) of the House Ways and Means Committee held hearings on the new HEART Act last spring, anybody watching in the chamber or on C-SPAN would have known the bill would surely pass due to the powerful testimony presented.

A widow of a major in the National Guard killed in Iraq spoke of being denied her husband’s full pension because he never returned to his job after taking a leave of absence — being deployed to Iraq — as pension rules had required. The HEART Act changes that pension provision.

A wife of a Marine explained that the family lost their Supplemental Security Income when her husband was deployed to Iraq, leaving her to deal with thousands of dollars in medical bills to pay for their two children who have chronic disabilities. That too has been amended.

The congressional hearing in Washington put a human face on personal and financial sacrifices made by those who put so much on the line for the country. Witnesses included members of the military and their spouses who spoke of the burdens placed on families connected with wars in Iraq and Afghanistan. These are families struggling to maintain their finances amid such conditions as loss of income during call-up, multiple deployments, injuries, higher health care expenses and death of a principal earner.

Advising the MilitaryThe Heroes Earnings Assistance and Relief Tax Act of 2008 (also known as H.R. 6081) was signed into law June 16, 2008. It opens a new horizon of opportunities and challenges for advisors who want to begin or step up their involvement in serving military clients.

“Financial advisors should make themselves aware of the HEART Act and its provisions for military families,” says Sheryl Garrett, CFP, author of A Family’s Guide to the Military For Dummies. Garrett, a prominent industry leader and founder of the Garrett Planning Network, points to the importance of financial advisors becoming familiar with the military’s structure of benefits and cultural ways of communication.

“They have a very tight network, so word-of-mouth referrals are valuable and potentially plentiful,” says Garrett. Yet Garrett also points out that the tight camaraderie and informal networking that exists within the military community can be challenging for the financial advisor to penetrate.

Once an advisor understands the range of unique benefits service members possess and the implications of the new HEART Act, then their combination of prior industry experience and awareness of military-specific opportunities make the advisor a valuable contribution to that community.

Phil Dyer, CFP, deputy director of financial education for the Military Officers Association (MOAA), echoes Garrett’s point, but with a bit of hesitation. He gives a “qualified maybe” when asked if the military is a space opening more to financial advisors. The former Navy captain says those who work to learn the intricacies of the system and advisors who themselves have had experience in the military have a distinct advantage when it comes to courting military clientele. “The military speaks its own language and has a set of quirky benefits which really have no equal in any other sector,” Dyer adds.

HEART BenefitsWhat happens when the often unthinkable occurs?

Under current law when a service member dies, the surviving family often receives substantial benefits from the government, which are quite different than standard employer-employee benefit agreements. Survivors will likely receive $400,000 from Service Members Group Life Insurance — which is standard issue unless the service member opted for less coverage — plus a “death gratuity” of $100,000 when the death occurs during active duty.

The HEART Act now offers survivors the option of placing that money immediately as a lump sum amount in a Roth IRA, bypassing the usual annual contribution limits. This new rollover rule provides a military family the opportunity to reach retirement or college savings goals with one large contribution on the death of a breadwinner.

Also new: mobilized National Guard and Reserve members may withdraw money from their personal retirement plans without incurring an early withdrawal penalty. Funds may be replaced up to two years after the end of active duty. (The replacement of funds does not provide an immediate tax benefit but provides basis in the retirement account.)

There is some risk in this change because current law is wisely designed to protect retirement savings from early withdrawals. Yet military households also need to be operational at home when the breadwinner is deployed — so the change is seen as a net gain. It will give families flexibility and help them avoid turning to predatory “payday” lenders as a way to get by.

Another important issue is that of differential pay, i.e., employers making up the difference between a service member’s civilian salary and what he/she receives from the military. Often the gap is quite large. Many employers choose to close this gap when employees are called to active duty. The HEART Act endorses and encourages (but does not mandate) that practice.

The new law simplifies accounting procedures for employers that provide differential pay, and it also classifies the payments as regular wages for income tax purposes. This eliminates “1099 shocks” for service men and women upon their return home. The reclassification removes some of the cumbersome rules for reporting income through which employers previously had to navigate. The law also creates a modest tax credit for certain qualifying small businesses that choose to pay differential pay to their activated reservists.

Another important change under the HEART Act is that service members are now allowed to include combat pay as earned income for purposes of the Earned Income Tax Credit.

These changes to the nation’s tax code regarding our service men and women were a long time coming and need not be delayed any longer by staying unrecognized by financial advisors. If your clients include members of the military, you will do well to learn more about the new HEART Act while continuing to study up on the unique financial benefits that military service offers. The opportunities are there for advisors to both attract new clients and make significant contributions to those on the front lines of service to the nation.

As we reflect on our many blessings during this season of thanksgiving, let us remember those who serve our country — and not just with thoughts and prayers (although much needed and warmly welcomed) but with words and actions, too.

Marie Swift is the president of Impact Communications, a marketing and communications firm for independent advisors; see


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.