Service members are exposed to a variety of threats, from the deadly to the financially. There are many generous programs and benefits that can be used to mitigate some of the risk.
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Military personnel face unique financial challenges that many people are not able to handle. They have many benefits, including tax breaks and legal protections.
These are the top 10 financial benefits that service personnel can enjoy and how you can make the most of them for your family’s financial security. Kim Lankford, Lisa Gerstner and Lisa Gerstner are co-authors. Kim’s husband, a 21-year-old Army doctor, was deployed three times. Lisa’s husband, a pilot instructor in the Air National Guard, has flown over 200 combat missions. These resources and benefits have been a huge help to their families over the years.
Low-Cost Retirement Savings Plan
The Thrift Savings Plan is available to service members at a low cost. Annual expense ratios for the Thrift Savings plan range from 0.049% up to 0.068% of assets. However, annual fees and expenses for 401 (k) plans are on average between 1% and 2%.
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You can choose from five index mutual funds, or a target date fund. The TSP automatically becomes more conservative the closer you get to retirement. You can contribute as much as $19 500 to the TSP in 2021. If you are receiving tax-free income while serving, you can also put $58,000 into the TSP. The maximum contribution for 2022 is $20,500 or $61,000 if you are a deployed service member who receives tax-free pay. A Roth TSP is also available, which is similar to a Roth IRA but with no income restrictions.
Mutual Funds for 401(k), Retirement Plans
10% Guaranteed Return on Savings. You can invest as much as $10,000 each deployment in the military’s Savings Deposit Program. The program pays 10% annually and compounded quarterly. It lasts up to three months after you return.
This is a good example of how low the average interest rate for a regular savings account is these days. It’s less than 0.1%. The SDP rate is over 100 times higher.
While you are receiving income tax-free during combat service, your take-home pay will increase. This can allow you to save money in the SDP. You can find more information on the Savings Deposit Program page of the Defense Finance and Accounting website.
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Estate Planning for Military Families
Deposits in Roth are exempted from tax. Contributions to a Roth IRA do not qualify for tax protection. For servicemen who receive tax-free combat-zone payments, however, the Roth IRA is tax-free. Your money and earnings go into the Roth, which provides a double tax benefit.
If your income is below certain levels, you can contribute $6,000 in 2021. The maximum contribution for 2022 is $6,000 for those whose income is below certain thresholds. If your spouse is not employed, you can also contribute the maximum for him or her.
Free College for You, Your Spouse, or Your Kid
The Post-9/11 GI Bill covers all in-state tuition and fees for public colleges for up 36 months (4 academic years) or $26,043 for private colleges and international schools. Additionally, you’ll receive a housing stipend as well as money to buy books and other supplies.
You can use the money for either undergraduate or graduate programs or certain programs at vocational or trade schools. One of the best aspects of the Post 9/11 GI Bill’s benefits is the possibility for long-serving servicemen to transfer their benefits to a spouse, or children. The Department of Veterans Affairs website has more information about the Post-9/11 GI Bill.
Inexpensive life insurance
The lowest-cost life insurance program available to service members is available to them. The maximum $400,000 of benefits for Servicemembers’ Group Life Insurance is $300 per year. This applies regardless of age, health, or likelihood of you being deployed. Policygenius reports that a healthy 40-year old man would pay an average of $500 per year for a $500,000 private 20-year term policy.
For as low as $54 per year, service members can get $100,000 coverage for their spouse if they are under 35. (More for older spouses). For more information, visit the Department of Veterans Affairs website.
State Tax Breaks
Service members can maintain their legal residence in one state, even if they’re stationed elsewhere under the law. If your legal residence, also known as domicile, is in a state without income tax, then you are protected from paying taxes if you move to another country while you are on active duty.
If a spouse has the same domicile and a service member, they can maintain their legal residency even if they move to another state.
Protective Legal Measures
Servicemembers Civil Relief Act offers special legal benefits to service members. This includes a 6% interest rate cap on loans taken before you were called into active duty. This is particularly helpful for Reserve members who are called to active service and must take a pay cut if they do.
This benefit is available to those who are unable to pay due to military service. You must apply to the lender to receive it. If you are required to move to a new place or have received orders to permanently change your station, you can terminate an apartment lease. These requests can be made to the Armed Forces Legal Assistance Office.
No-Money Down Mortgages
VA Loans are available to military personnel. These loans allow you to buy a house without any money down and no private mortgage insurance. For more information, visit the Department of Veterans Affairs website. If you don’t put any money down, your home could be upside-down if the market drops and you need to move.
Fannie Mae offers advice on underwater homes at the KnowYourOptions.com Military page and the government’s Making Home Affordable page.
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A major perk for military personnel is the tax-free housing allowance. This monthly subsidy covers all or part your monthly rent and mortgage payments, as long as you are in the military.
You can check your Leave and Earnings Statement (your Military Pay Stub) to see the value of your Basic Allowance Housing. Or, you can search it by zip code and rank at the Department of Defense’s BAH Calculator.
Low-Interest Loans
Every branch of the military has an immediate-relief fund which offers small, interest-free loans in case of emergency. For more information, contact the base community-service office or visit Coast Guard Mutual Assistance, Navy-Marine Corps Relief Society and Air Force Aid Society.
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Base credit unions also offer short-term loans with reasonable interest rates. Many offer short-term loans for military personnel with no credit checks.
