Members of the military have a lot of special financial challenges that most people don’t encounter. However, they have access to many benefits, tax breaks and legal protections.
Here are 10 of the best military benefits available to service members and how to make the most of them to improve your family’s financial future. The co-authors of this piece, Lisa Gerstner and Kim Lankford, have direct experience: Lisa’s husband is an Air National Guard instructor pilot who has flown more than 200 combat missions and Kim’s husband was an Army doctor for decades who deployed three times. Many of these resources and benefits have helped their families significantly over the years.
Thrift Savings Plan: A Low-Cost Retirement-Savings Vehicle
Service members have access to one of the lowest-cost retirement-savings plans around. The funds in the Thrift Savings Plan (TSP) charge annual expense ratios that range from 0.043% to 0.059% of assets – whereas annual fees and expenses for 401(k) plans range, on average, between 1% and 2%.
The TSP lets you choose among five index mutual funds or a target-date fund, which automatically becomes more conservative as your retirement date gets closer. For 2022, the maximum TSP contribution is $20,500, or $61,000 for deployed service members earning tax-free pay. The 2023 maximum contribution is $22,500, or $66,000 for those who are deployed with tax-free pay. You have access to a Roth TSP, too, which functions like a Roth IRA, but without income restrictions. See www.tsp.gov for details.
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Savings Deposit Program: A 10% Guaranteed Return
The military’s Savings Deposit Program lets deployed service members invest up to $10,000 in the program each time you are deployed. You receive 10% annual interest, compounded monthly and paid quarterly; the program lasts for up to three months after your return.
To put that in perspective: The average interest rate on a regular savings account these days is about 0.1%. The SDP rate is 100 times higher.
Remember that take-home pay increases while you’re receiving tax-free income during service in a combat zone, which can help you stash extra money in the SDP. For more information, see the Savings Deposit Program page at the Defense Finance and Accounting website.
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Tax-Free Roth Deposits
For most people, contributions to a Roth IRA are not shielded from taxes. But for service members 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.
The 2022 maximum contribution is $6,000 for those with incomes below certain thresholds, and the 2023 limit is $6,500 for those with qualifying incomes. And if your spouse doesn’t work, you can contribute up to the maximum on his or her behalf, too.
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Post 9/11 GI Bill: 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 a certain amount per year for private colleges and foreign schools—currently, it is $26,381. You’ll also get a housing stipend and money for books and supplies.
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 service members 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.
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Servicemembers’ Group Life Insurance
Service members have access to one of the lowest-cost life insurance programs available. Servicemembers’ Group Life Insurance costs only $300 a year for the maximum $400,000 in benefits — regardless of your age, health or likelihood of being deployed. (For comparison, a 40-year-old nonsmoker pays an average $600 a year for a private $500,000, 20-year term insurance policy, according to ValuePenguin.)
Service members can also get $100,000 in coverage for a spouse for as little as $54 a year if he or she is under age 35 (more for older spouses). See the Department of Veterans Affairs site for more information.
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State Tax Breaks
The law allows service members 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 service member can also maintain that legal residency if the couple moves to a new state under military orders.
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Loan Caps, Lease Protections for Servicemembers
The Servicemembers Civil Relief Act provides special legal benefits for service members, 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.
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VA Loans Can Put You in a House for No Money Down
Members of the military have access to VA Loans, which let you get a house with no money down (and no private mortgage insurance). See the Department of Veterans Affairs website for more information. A caveat: 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.
For help dealing with underwater homes, see Fannie Mae’s advice at the KnowYourOptions.com military page and the government’s Making Home Affordable page.
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Military Housing Allowances are Tax Free
Another big perk for service members 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.
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Military Branches Offer 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.
Steer clear of payday lenders and other lenders that charge steep interest rates. Predatory lenders often set up shop near military bases, targeting service members who are in need of cash.
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