Members of the military and their families deal with special financial issues that provide both challenges and opportunities.
They move frequently and may be deployed to a combat zone for months, but they also have job stability and access to valuable financial benefits. Their income may start out low, but they have tax-free housing benefits and special low-cost savings opportunities. If they stay in the military long enough, they can receive retirement income for life starting in their 40s. They’re also eligible for free healthcare, low-cost mortgages with no down payment, inexpensive life insurance, free college for themselves or their children and special tax breaks and legal protections.
While you’re focusing on your job, possible deployments and frequent moves, it’s easy to overlook some of these important benefits. But if you make the most of these opportunities, you can set yourself and your family up for financial success in the future. Here are a few key benefits for military families, and how to make the most of them.
Low-Cost Savings and Matching Contributions
Service members who stay in the military for 20 years can qualify for a valuable pension — which can provide 40% to 50% of their base pay for life — but most people don’t stay that long. So many will want to take advantage of special savings opportunities while they can.
Service members can build tax-advantaged savings in the Thrift Savings Plan (TSP), which is one of the lowest-cost retirement savings programs; and people who joined the military in 2018 or later, or who joined from 2006 to 2017 and opted into the Blended Retirement System, can now get matching contributions from the Department of Defense. To get the full match, which is free money, you must contribute at least 5% of your pay to the TSP. See this website for details.
Special Financial Benefits
Service members can receive low-cost life insurance for themselves and their families through the Servicemembers Group Life Insurance program. They can get up to $400,000 of life insurance for $288 per year, regardless of their health and risk. You can also get up to $100,000 of coverage for your spouse, with premiums of $54 per year for spouses under age 35.
Service members can also get free college for themselves or their families through the Post 9/11 GI Bill, which covers the full cost of in-state tuition and fees at public colleges for up to 36 months, or up to $25,162 for the 2020-21 school year for private colleges. You can receive some benefits after 90 days on active service, and you can qualify for the maximum benefits after serving for at least 36 months on active duty (or less if you were discharged for a service-connected disability). Long-time service members can transfer their Post-9/11 GI Bill benefits to their spouse or children. To qualify for the transfer, you generally must have served for at least six years and agree to serve for four more.
Service members can also get a low-cost mortgage without having to make a down payment. With the VA loan, you don’t have to get private mortgage insurance, even if you put less than 20% down. If you have a service-connected disability, you may not have to pay the VA funding fee.
For more information about each of these programs, see this website.
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Military Tax Breaks
Members of the military automatically get some important tax breaks: They receive a tax-free housing allowance and can get tax-free income while deployed to a combat zone. And they may be able to benefit from a special state income tax rule: Military members and their spouses are allowed to maintain legal residence in one state even if they are stationed in another.
Some people maintain their legal residency in the state where they lived when they joined the military. But some take steps to change their residency to another state that they are stationed in, which could save money if that state has a lower or no income tax, such as Florida or Texas. Find out the steps you need to take to change your domicile while you are stationed in the state. You usually need to register to vote in that state, register your car and get your driver’s license there and plan to return there once you leave the service. Check your state’s department of taxation website for the rules for establishing domicile there.
Legal Protections for the Military
Members of the military are covered by the Servicemembers Civil Relief Act (SCRA), which provides several legal protections. It caps the interest rate for loans taken out prior to military service at 6%, including car loans, credit cards, student loans and mortgages. The cap only applies to loans you took out before you were on active duty, which can be most helpful for members of the Reserves who are called to active duty and for people who took out high-interest loans before they joined the military.
The SCRA also gives you rights to terminate a residential lease if you have permanent change of station (PCS) orders or if you receive orders to deploy for 90 days or more. You can terminate a car lease if you receive orders to deploy for 180 days or longer or in several other circumstances. Check with the legal affairs office on base for more information about how these legal benefits can help you.
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Last updated: May 13, 2021