The Top Five Investments for Military Families. By: Rick Viader

Since serving in the military doesnt allow for much spare time, it might be challenging to research and select the best investments. The good news is that there are several savings and investing options available to help you prepare for a comfortable future without adding a lot of time or worry to your already hectic schedule. Here are five of the most significant investments for service members to consider.

KEY TAKEAWAYS

  • Service members have access to various savings and investing options, including some that are unavailable to civilians.
  • The federal Thrift Savings Plan (TSP) is comparable with a 401(k) plan, and it offers automatic paycheck deductions and matching contributions.
  • Both Traditional and Roth IRAs offer a diverse variety of investment options and can be an excellent complement to a TSP.
  • The Savings Deposit Program, 529 college savings programs, and real estate are examples of other investments.

Federal Thrift Savings Plan (TSP)

The TSP is a qualified retirement plan that offers federal employees and military members a low-cost, tax-advantaged investment. You may create your investment portfolio, ranging from a short-term US T-bond to index funds to a life-cycle fund, which automatically rebalances your assets as you approach retirement.

For your TSP contributions, you have two options for tax treatment:

Traditional TSPWith this pre-tax plan, you receive a tax break the year you contribute and pay taxes when you take out funds in retirement.

Roth TSPThis after-tax plan doesnt provide immediate tax benefits, but eligible withdrawals are tax-free in retirement.

If youre not sure which choice is best for you, use TSP.govs contribution comparison tool.

The maximum contribution to a TSP in 2021 is $19,500, or $26,000 for those 50 or older. If youre a member of the Federal Employee Retirement System (FERS) or the Blended Retirement System (BRS), you can earn up to 5% extra from the militarys matching contributions. Youll receive a dollar-for-dollar match on the first three percent of your salary that you put to the TSP, followed by a 50 cents-on-the-dollar match on the following two percent. The more you save, the higher the match, so it pays to contribute as much as possible.

You may set up automatic installments that come directly out of your paycheck, similar to a 401(k), making it simple to set it and forget it. Itll be wise to set up automatic deposits before receiving your first check; that way, you wont lose out on any money.

Individual Retirement Accounts (IRAs)

Even if you max out your TSP contributions, you may still save money in an individual retirement account (IRA). An IRA can be an excellent way to complement your TSP and ensure a comfortable retirement.

IRAs, like the TSP, are available in traditional (pre-tax) or Roth (after-tax) forms. Due to the wide range of investment options, IRAs provide more flexibility than TSPs. The contributions limitations, on the other hand, are significantly lower. The maximum contribution to IRAs in 2021 is $6,000 ($7,000 for those 50 or older).

529 College Savings Plans

A 529 plan might be a tax-advantaged method to save if you have children and anticipate future education costs. Tax legislation approved in 2017 and 2019 allows you to use a 529 plan to pay for K-12 expenses rather than simply college and other post-secondary education. While contributions arent tax-deductible at a federal level, more than 30 states provide a full or partial tax deduction or credit. A 529 plan grows tax-free and allows for tax-free withdrawals if used for eligible education costs.

You can contribute any amount you want to a 529 plan, but anything more than $15,000 per individual (the yearly gift tax exclusion) would result in federal gift taxes. Most plans allow you to set up automatic investments, making it simple to keep on track.

Savings Deposit Program

The Department of Defense Savings Deposit Program (SDP) guarantees a 10% annual return on deposits of up to $10,000 to deployed military personnel serving in specified conflict zones. To qualify, you must be receiving Hostile Fire Pay and to have been deployed for at least 30 days in a row or at least one day per month for three months in a row. If you redeploy your house, you will continue to receive 10% interest for 90 days unless you request a withdrawal sooner.

While an additional $1,000 might be helpful, remember that SDP income is reported on a 1099-INT form the year you withdraw money, which means you may owe taxes on the earnings.

Real Estate

Real estate may be a great strategy to diversify and increase your earnings. The trade-off is that its riskier (and requires more work) than lower-risk investments. Nonetheless, real estate investments provide several benefits, like tax benefits and continuous passive income. Buying a house and converting it into a rental property is a typical strategy to invest in real estate (some service members purchase a property close to their bases to manage the rentals easier).

Another common alternative is real estate investment trusts (REITs). A real estate investment trust (REIT) is a corporation that owns, operates, or funds income-generating properties. Investors buy shares of publicly listed REITs through a taxable brokerage account or an IRA. REITs are required by law to distribute 90% of their earnings in the form of dividends each year, resulting in substantial dividend yields for investors.

Investing Help From the SEC

The Securities and Exchange Commission (SEC) urges service members to contact them if they have questions concerning investing or want to know how to verify an individuals or a firms license or registration. To do it, call the SECs toll-free investor helpline at 800-732-0330 (dial 1-202-551-6551 if youre calling from outside the U.S.) or send an email to [email protected] The SEC is a member of the Department of Defenses Financial Readiness Network and regularly holds investor education briefings on military facilities. If youre interested, email [email protected]

The Bottom Line

Remember that there are several other options to save and invest, including U.S. Savings Bonds (Series I Savings Bonds are paying 3.54 percent throughout October 2021) and Servicemembers Group Life Insurance.

Service members can also take advantage of programs that, while not investments, can help you save money. The VA Home Loan program, for example, provides mortgages with no down payment, low interest rates, cheap closing costs, and no requirement for private mortgage insurance (PMI).

Additionally, the Post-9/11 GI Bill covers the entire cost of in-state tuition and fees at public institutions for up to 36 months and $26,042.81 a year at private colleges and foreign schools. If you come from a rural area to attend school, you can also obtain money for accommodation (if you attend more than half-time), books, supplies, and moving expenses. Long-term service members have the option of transferring their benefits to a spouse or child.

Where Can Service Members Invest Their Money?

Military families can make the same investments as civilians and a few that are only available to federal government employees and military members.

Can Military Members Invest in Stocks?

Service members can create taxable brokerage accounts to purchase and sell stocks, ETFs, and other securities.

How Long Do I Have to Serve to Be Eligible for a Military Pension?

To be eligible for the lifelong monthly annuity, you must have served for at least 20 years. Your benefit is determined by the number of years you served and the amount you earned. The precise method for calculating benefits is determined by when you first joined the service.

Other rick viader Articles

Five Steps to a Comfortable, Secure, and Enjoyable Retirement, by Rick Viader

The Top Five Investments for Military Families. By: Rick Viader

Five Reasons Why Federal Employees Should Consider a Roth IRA. By: Ricardo Viader

TSP Participants Want Changes in the Program, but Majority Are Satisfied with the Savings Scheme. By: Ricardo Viader

Leave a Reply