Created on May 16, 2023
1. Make the most of the Thrift Savings Plan.
Your TSP is similar to a civilian 401(k), but the fees are extremely low and you have some extra benefits. As with a 401(k), you can contribute up to $19,000 to the TSP in 2019, plus an extra $6,000 if you’re 50 or older anytime this year. If you’re deployed and receiving tax-free income in a combat zone, you can contribute up to $56,000 for the year. Even if you can’t afford to contribute that much, you may still be able to boost your contributions a bit while you’re deployed and your income is tax-free.
2. Consider making Roth TSP contributions.
Many service members don’t realize that they now have a choice between two types of TSP contributions: traditional TSP contributions, which lower your taxable income now and grow tax-deferred until retirement, or Roth TSP contributions, which don’t give you a current tax break but do let you withdraw the earnings tax-free after age 59½. The Roth TSP can be particularly valuable for service members whose taxable income is much lower now than it will be in the future (mainly because of the tax-free housing allowance and tax-free income while deployed). Note that contributions to the Roth TSP from tax-free pay in a combat zone will never be taxed.
3. Check up on your TSP investments.
You have several investment options in the TSP with very low fees. You can invest in index mutual funds that focus on large companies, small firms, international firms, bonds and government securities. Or you can choose a lifecycle fund (called the L fund), which builds a diversified portfolio of the other funds to match your time horizon. The L fund invests primarily in stock funds at the start, when you have more than a decade before you plan to tap the money, then it gradually becomes more conservative as your retirement date draws near. Pick the retirement date in the L fund that matches when you plan to stop working (not just for the military) and need to start withdrawing the money.
4. Consider a Roth IRA, too.
In addition to contributing to your TSP, you can contribute up to $6,000 to a Roth IRA in 2019 (or $7,000 if you’re 50 or older) as long as your modified adjusted gross income is less than $137,000 if you’re single or $203,000 if you’re married and filing jointly. You don’t get a current tax break, but you can withdraw the money tax-free after age 59½, and you can withdraw your contributions at any time without penalties or taxes. Service members get an extra benefit: As with the Roth TSP, if you invest tax-free income while in a combat zone, it goes in tax-free and comes out tax-free, too.
5. Check your estate planning documents and benefits.
This is a good time of year to make sure your beneficiary designations on your retirement savings, life insurance and other accounts are up to date.
Consider creating a power of attorney for your spouse or other trusted person to handle your finances if you aren’t able to do so yourself, especially if you expect to be deployed soon, and a health-care proxy designating someone to make medical decisions on your behalf. Your base legal affairs office can help with these documents (see the legal services locator to find an office near you). Also, learn the rules for the Service Members Civil Relief Act, which provides special legal protections and interest rate reductions for some service members who are deployed or called to active duty.
6. Find out about your eligibility for the GI bill and whether your spouse and kids can benefit.
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) for private colleges and foreign schools, plus a housing stipend and money for books and tutoring. For the maximum benefit, you generally must serve at least 36 months on active duty (you’ll earn partial benefits if you serve at least 90 days). Longtime service members can transfer their benefits to their spouse or children – you generally need to have served for at least six years on active duty or selected reserve and agree to serve four more years. Spouses can use the transferred benefits right away; children must wait until you’ve served at least 10 years.
7. Think about your next steps.
If you plan to leave the military in the next few years, start planning your next move and career. When calculating how much income you’ll need, keep in mind that you’ll lose valuable military benefits, such as premium-free health care and your tax-free housing allowance, and you’ll need to pay state income taxes in the state where you actually live (active duty service members and their spouses don’t have to change their domicile every time they move).
USAA recommends setting aside six to nine months’ living expenses as a “transition fund” that will cover your expenses if it takes awhile to find a new job or if you have extra expenses related to a move. Also make the most of resources available through the military community service office to help with your transition and job search.
A financial professional:
Beyond the numbers, a financial professional can also offer emotional support and a listening ear, acknowledging the unique stressors military families may experience due to frequent relocations, deployments, and uncertain circumstances.
My calendar is available for you, let’s schedule a meeting to discuss your needs and goals!