by guest blogger Kimberly Lankford, author of Kiplinger’s Financial Field Manual: A Personal Finance Guide for Military Families
Members of the military have a lot of special financial challenges that most people don’t encounter. However, they have access to many special benefits, tax breaks and legal protections that can make a huge difference in their families’ personal finances.
Here are ten of the top financial benefits available to servicemembers and how to make the most of them to improve your family’s financial future. My husband was an Army doctor for 21 years and was deployed three times; many of these resources and benefits helped our family a lot over the years.
1. Low-Cost Retirement-Savings Plan
Servicemembers have access to one of the lowest-cost retirement-savings plans around. The Thrift Savings Plan charges an annual expense ratio of just 0.029% of assets — whereas annual fees and expenses for 401(k) plans range, on average, between 1% and 2%.
The TSP lets you choose one of five index mutual funds or a target-date fund, which automatically becomes more conservative as your retirement date gets closer. You can invest up to $18,000 annually in the TSP in 2016 and 2017, and if you’re receiving tax-free income while deployed you can boost your contributions to $53,000 for the year. And now you have access to a Roth TSP, too, which is like a Roth IRA but without the income restrictions. See www.tsp.gov for details.
2. 10% Guaranteed Return on Savings
The military’s Savings Deposit Program lets deployed servicemembers invest up to $10,000 in the program each time you are deployed. You receive 10% annual interest, compounded quarterly; the program lasts for up to three months after your return.
Your take-home pay increases while you’re receiving tax-free income during deployment, which can help you afford to stash extra money in the SDP. For more information, see the Savings Deposit Program page at the Defense Finance and Accounting Web site.
3. Tax-Free Roth Deposits
For most people, contributions to a Roth IRA are not shielded from taxes. But for servicemembers receiving tax-free combat-zone pay, your money goes into the Roth tax-free, and your contributions as well as your earnings come out tax-free, a double tax benefit that’s tough to beat.
You can contribute up to $5,500 to a Roth in both 2016 and 2017 if your income doesn’t exceed certain limits. (Check out the income limits for 2016 and for 2017.) And if your spouse doesn’t work, you can contribute up to the maximum on his or her behalf, too.
4. Free College for Yourself or a Spouse or Kid
The Post-9/11 GI Bill covers the full cost of in-state tuition and fees at public colleges for up to 36 months (four academic years), or up to $21,970 per year for private colleges and foreign schools. You’ll also get a housing stipend and money for books and tutoring.
The money may be used for undergraduate or graduate programs, or for certain programs at vocational and trade schools. And one of the best features of the Post 9/11 GI Bill is that longtime servicemembers may transfer their benefits to a spouse or children. Get more details on the Post-9/11 GI Bill at the Department of Veterans Affairs website.
5. Inexpensive Life Insurance
Servicemembers have access to one of the lowest-cost life insurance programs available. Servicemembers’ Group Life Insurance costs only 7 cents per $1,000 of coverage per month or $336 a year for the maximum $400,000 — regardless of your age, health or likelihood of being deployed. (The lowest rate that a healthy 40-year-old man could get for a private $500,000, 20-year term insurance policy would range from $350 to $450.)
Servicemembers can also get $100,000 in coverage for a spouse for as little as $60 a year if he or she is under age 35. See the Department of Veterans Affairs site for more information.
6. State Tax Breaks
The law allows servicemembers to maintain legal residence in one state even if they are stationed in another. So if your legal residence (also called domicile) is a state that has no income tax, you can be shielded from taxes if you move to another state while on active duty.
A spouse who has the same domicile as a servicemember can also maintain that legal residency if the couple moves to a new state under military orders.
7. Special Legal Protections
The Servicemembers Civil Relief Act provides special legal benefits for servicemembers, including an interest-rate cap of 6% on any loans you took out – before – you were called to active duty. This cap is especially helpful for members of the Reserves who are called to active duty and have to take a pay cut when they leave their regular jobs.
You have to apply to the lender for this benefit, which is intended to help you if your ability to pay is affected by military service. The law also gives you the right to terminate an apartment lease if you have orders for a permanent change of station or are deployed to a new location for 90 days or more. The Armed Forces Legal Assistance Office can help with these requests.
8. No-Money Down Mortgages
Members of the military have access to Veterans Administration loans, which are now one of the only ways to get a house with no money down (and no private mortgage insurance). See the Veterans Administration site for more information. However, if you put little or no money down, you could end up being upside down on your home if prices drop and you have to move.
9. Tax-Free Housing Allowance
Another big perk for servicemembers is the tax-free housing allowance, a monthly subsidy covering all or part of your monthly rent or mortgage payment as long as you’re in the military.
To see the value of the subsidy (which varies by your rank, where you live and whether you have dependents), check your Leave and Earnings Statement (your military pay stub) for your Basic Allowance for Housing and other special benefits, or look it up by rank and zip code at the Department of Defense’s BAH calculator.
10. Low-Interest Loans
Each branch of the military has an emergency-relief fund that offers small, interest-free loans for emergencies. Contact the community-service office at your base for details, or visit Army Emergency Relief, Navy-Marine Corps Relief Society, Air Force Aid Society or Coast Guard Mutual Assistance.
Credit unions on base also offer short-term loans at reasonable interest rates. Some even offer small emergency loans to members of the military with little or no credit check.