Members of the military and their families have special financial challenges because they tend to move frequently and may be deployed to dangerous locations on short notice. But military families also have access to some financial benefits that aren’t available to civilians. Here’s how to make the most of these valuable opportunities to improve your personal finances – and how to navigate some important new rules.
–Low-fee savings opportunities for military families. If you stay in the military for 20 years, you can receive a valuable pension – starting at 40% to 50% of your base pay for your lifetime, depending on the retirement system you’re enrolled in. But most people don’t stay for 20 years, so it’s important to save for retirement on your own, too. Servicemembers have access to one of the lowest-cost retirement-savings plans, the Thrift Savings Plan, which is like a 401(k) but with lower fees. Similar to a 401(k), you can contribute up to $19,000 in 2019 (plus an extra $6,000 if you’re 50 or older). If you’re receiving tax-free income while deployed, you can contribute up to $56,000 in 2019.
Some servicemembers just started to receive a TSP match from the government. If you joined the military in 2018 or later, or if you joined between 2006 and 2017 and opted into the new “blended retirement system,” then the Department of Defense automatically contributes 1% of your base pay to the TSP after 60 days of service, and will match your TSP contributions for the next 4% of your pay. That means you need to contribute 5% to the TSP each year to get the full match, which is a good financial priority that earns you free money.
–A special savings program with 10% annual interest. Guaranteed interest of 10% sounds too good to be true, but the military’s Savings Deposit Program is the real deal. You can invest up to $10,000 in the SDP each time you are deployed, earning 10% annual interest, compounded quarterly, while you’re deployed and for up to three months after you return. For more information see the Savings Deposit Program.
–Valuable education benefits for military 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 $24,477 for the 2019-20 school year for private colleges and foreign schools, plus a housing stipend and money for books. And long-time servicemembers have an added benefit – if you have 6 to 16 years of service, you can transfer your benefits to your spouse or children. The GI bill may only pay a portion of the cost at a private or out-of-state college, but the school may offer a Yellow Ribbon scholarship program to help make up the difference. For more information about qualifying for the GI bill, see the Department of Veterans Affairs’ Post-9/11 GI Bill page. Also see the VA’s factsheet about Post-9/11 GI Bill transferability, and the Yellow Ribbon program page.
–Low-cost life insurance. Servicemembers Group Life Insurance costs just 7 cents per $1,000 of coverage per month – adding up to $336 a year for the maximum $400,000 benefit. Servicemembers can also get $100,000 in coverage for a spouse under 35 for as little as $60 per year (more for older spouses). See the VA’s Life Insurance page for more information.
–Mortgages with no down payment. Servicemembers and veterans who qualify for a VA loan can get a mortgage with no down payment and without having to pay private mortgage insurance. Compare rates with other types of mortgages, especially if you have a good credit score and can afford a down payment. Veterans with a disability rating, however, can get a break on fees. See benefits.va.gov/homeloans for more information.
–A variety of tax breaks. Servicemembers who don’t live in base housing receive a tax-free housing allowance (called a Basic Allowance for Housing) to help pay their rent or mortgage. See the Department of Defense’s BAH Calculator to determine the amount based on zip code and pay grade. Servicemembers who are deployed can receive tax-free income while serving in a combat zone and can contribute more money to the Thrift Savings Plan. And while you’re on active duty, you and your spouse can maintain your legal residence in one state even if you’re stationed in another state, which can save you money in taxes if you establish residency while stationed in a state with no state income taxes, such as Florida and Texas. For more information, see IRS Publication 3, Armed Forces Tax Guide.
–Special legal protections. The Servicemembers Civil Relief Act provides special legal protections, including an interest-rate cap of 6% on any loans you took out before you were called to active duty, if military service affects your ability to pay (which can be especially valuable if you had to take a pay cut when activated to the Reserves or National Guard). The SCRA also provides the right to terminate an apartment lease if you have orders for a permanent change of station or are deployed for 90 days or more. You can terminate a car lease without an early-termination fee if you’re deployed for 180 days or longer. For more information see the U.S. Department of Justice’s Servicemembers Civil Relief Act page.