How Military Families Can Make the Most of Their Financial Benefits
Military families face special financial challenges from frequent moves and deployments. But they also have access to valuable benefits that can help with their finances long into the future, such free money for retirement, a savings plan with guaranteed 10% interest rates, special tax breaks, free college for service members and their families, 6% interest-rate caps for some loans, no down payment mortgages and interest-free loans and grants for emergency expenses.
Free Money and Tax Breaks From the TSP
All service members have access to the Thrift Savings Plan, which is a low-cost, tax-advantaged way to save for the future. 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 get matching contributions from the Department of Defense — that’s free money. To get the full match, you must contribute at least 5% of your pay to the TSP.
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The TSP can provide valuable tax benefits even if you aren’t in the Blended Retirement System. Traditional TSP contributions can either lower your taxable income now and grow tax-deferred for retirement, or you can make Roth TSP contributions, which don’t reduce your taxable income now but provide tax-free withdrawals in retirement.
You can choose from several low-fee investments for your TSP money. You can contribute up to $19,500 to the TSP in 2021 (or $26,000 if 50 or older) and even more if you’re deployed — the annual limit jumps to $58,000 of you’re deployed in 2021 and receiving tax-free income in a combat zone. It may be tough to save that much in one year, but you may be able to boost your contributions a bit when you’re receiving tax-free income while deployed.
Guaranteed 10% Interest When Deployed
Deployed service members can contribute up to $10,000 to the Savings Deposit Program, which earns 10% annual interest guaranteed — giving you much higher interest rates than other guaranteed savings these days. You can deposit the money into the account while you are deployed and for up to 90 days after you return. See the Department of Defense’s Savings Deposit Program page for more information.
Read More: 5 Investing Tips for Military Members
Low-Cost Life Insurance
Service members can receive low-cost life insurance for themselves through the Servicemembers Group Life Insurance Program. You can get up to 400,000 of coverage for just $288 per year, regardless of your 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 (slightly more for older spouses), and up to $10,000 in coverage for dependents under age 18 for free. For more information about both programs, see the VA’s life insurance page.
Free College for Service Members and Their Families
The Post 9/11 GI Bill covers the full cost of in-state tuition and fees at public colleges for up to four academic years, or up to $26,042.81 per year for four academic years at private colleges (adjusted for inflation each year). You can receive some benefits after 90 days on active service, and 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). See the VA’s Post 9/11 GI Bill page for more information.
Long-time service members have a special benefit: If you have served for at least six years and agree to serve for four more, you can transfer your GI Bill benefits to your spouse or children. Your spouse can use the transferred benefits right away, but children must wait until you’ve served for at least 10 years, and they must use the benefits before they turn age 26. For more information, see the VA’s page for transferring your Post 9/11 GI Bill benefits.
Loan Rate Caps of 6%
The Servicemembers Civil Relief Act (SCRA) provides several legal protections for members of the military, and one of the most valuable benefits is the interest-rate cap. Under the SCRA, the rates on loans you took out prior to military service can be reduced to 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. Ask your lender about the steps to take to get your rates reduced; you usually need to fill out a form and provide a copy of your military orders.
Other Legal Protections
The SCRA also provides other legal protections. For example, service members can terminate a residential lease if they receive permanent change of station orders or a deployment that will last for more than 90 days, and they can terminate a car lease if they receive PCS orders or are being deployed with a military unit for 180 days or more. For more information, see this Servicemembers Civil Relief Act page. The legal affairs office on base can also help you learn about your SCRA rights — click here to find the nearest legal assistance office.
The VA loan provides service members and veterans with a low-cost mortgage that does not require a down payment. Otherwise, home buyers who don’t make a 20% down payment generally have to buy private mortgage insurance, which can cost from .5% to 1.5% (or more) of the loan amount each year. If you have a service-connected disability, you may not have to pay the VA funding fee. For more information, see the VA’s home loans page.
If you already have a VA loan, you may be able to lower your mortgage rate with an interest rate reduction refinance loan, which can help you take advantage of today’s low interest rates to reduce your payments or pay off your loan earlier. See the VA’s IRRRL fact sheet for more information.
Special Tax Breaks for You and Your Spouse
Members of the military can receive a tax-free housing allowance if they don’t live in military housing, and they can also get tax-free income while deployed to a combat zone. They may also be able to benefit from special tax rules that allow service members and their spouses to maintain legal residence in one state even if they are stationed in another state.
Some people maintain their legal residency in the state where they lived where they joined the military, or you can take steps to change your residence to another state while you are stationed there — and maintain that residency as long as you’re on active duty, even if you have to move again. This can save you money if the state has a lower or no income tax, such as Florida or Texas. But you need to take specific steps to make the new state your domicile — you usually must register to vote in that state, register your car and get your driver’s license in that state, and plan to return there after you leave the service. Check your state’s department of taxation for the rules.
Did You Know: How Much Do Veterans Make From Military Retirement?
No-Interest Loans and Grants for Emergencies
Every branch of the service has a military aid society that provides no-interest loans and grants for emergency expenses, such as home and car repairs, moving expenses that aren’t covered by the military and disaster relief. Several of the aid societies offered special funds that helped pay for unexpected COVID-related expenses, such as extra child care costs while schools were closed, financial help when a civilian spouse lost his or her job and emergency travel expenses to visit sick relatives. Some also offer scholarships for military spouses and children.
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