Three Benefits That Can Help Military Families Target Financial Goals
Retirement, college, a down payment on a home--no matter what your financial goals are, pursuing them isn't always easy. Here's a quick look at three benefits that can help you stay on track.
The Thrift Savings Plan
Even if you plan on staying in the service for 20 years or more and can rely on a military pension, it probably won't provide all of the retirement income you'll need. That's why it's important to save for retirement on your own. One option you have is to contribute to the government's Thrift Savings Plan (TSP).
When you make traditional contributions to the TSP, you get the same types of savings and tax benefits as you would if you contributed to a 401(k) offered by a private-sector employer. It's easy to contribute--your regular contributions are taken out of your paycheck before taxes (which lowers your tax liability for the year), and your contributions and any earnings accumulate tax deferred until withdrawn at retirement. You can also opt to make after-tax Roth contributions. These won't reduce your current tax liability, but withdrawals at retirement will be tax free (if IRS requirements are met).
You can contribute as little as 1% or as much as 100% of your basic pay (or a dollar amount) per pay period up to the elective deferral limit for the year. In 2014, this limit is $17,500 (or $23,000 if you're age 50 or older and making catch-up contributions). If you're contributing a percentage of basic pay, you can also contribute a percentage of incentive pay, special pay, or bonus pay (but you can't make catch-up contributions from these types of pay). And if you're deployed and receiving tax-exempt pay, you can also make contributions from that pay (special rules and a higher contribution limit apply). For more information on the TSP, visit www.tsp.gov.
The Post-9/11 GI Bill
If you're entitled to benefits, the Post-9/11 GI Bill will cover the full cost of your in-state tuition and fees at a public college for up to four years, or pay up to $17,500 per year if you attend a private college or foreign school. But did you know that the Post-9/11 GI Bill also offers you a way to pay for your family's education? Servicemembers who are active duty or Selected Reserve and who make a long-term service commitment may opt to transfer unused education benefits (up to 36 months' worth) to their spouses and children.
To transfer your benefit entitlement to your spouse, you must have served at least 6 years, and generally commit to serving 4 more years from the date a benefit transfer is approved (some exceptions to this added service requirement exist). Once the transfer is approved, your spouse may begin using benefits immediately and has 15 years after your last separation from active duty to use them. If you opt to transfer your unused entitlement to your dependent children, they can only use the benefits only after you've completed 10 years of service. In addition, they must have attained a secondary school diploma or equivalency certificate or have reached age 18, and they can use the benefit entitlement only until age 26. You can also split your entitlement between your spouse and children. To learn more about GI Bill benefits for you and your family members, visit www.benefits.va.gov.
The Savings Deposit Program
Are you trying to save to buy a vehicle or to make a down payment on a home? Do you need to set aside money for a rainy day? If a deployment is looming, you have a unique chance to save for your goals at a guaranteed interest rate by participating in the Defense Department's Savings Deposit Program (SDP).
The SDP pays you 10% annual interest on up to $10,000 of what you're able to save while you're deployed in a designated combat zone or in support of a contingency operation, and you'll earn this interest rate on your money for up to 90 days after your return. Interest is compounded quarterly and is taxable. Funds must generally remain on deposit until your deployment ends (some exceptions exist).
To begin participating in the SDP or to find out more, contact your local military finance office.