Taxes, Savings, & Investments for Service Members and Veterans

This past week I had the honor of participating in a Google Hangout with the folks from Veterans United and Jeff Rose, a fellow veteran, financial planner, and author. Jeff writes for the site Good Financial Cents, and his book, Soldier of Finance, is being published this fall.

Jeff Rose CFP

Jeff Rose, CFP and Army Veteran

In the Google Hangout we discussed Military Saves Week, saving and investing opportunities for military members and veterans, taxes, and much more.

Here is a preview of some of the topics we covered:

  • Military Saves Week
  • Thrift Savings Plan and the Roth TSP
  • How to start investing
  • Military taxes
  • The Debt Movement
  • Why Jeff and I started our blogs
  • Jeff’s new book coming out this fall
  • Disability compensation benefits
  • Where to get help for VA claims
  • Our best advice for how military members can start saving
  • and much more.

Here is the YouTube video (and there is more detailed information and additional links below the video):





Saving Money on Deployments

Deployments are an interesting time for everyone involved. You live a life without a lot of luxuries, at a time when you are earning more money than you normally earn. The combination of doing without and having money in your pocket when you get home makes it easy for many military members to go on a buying spree when they return. A new truck, motorcycle, stereo system, or similar large expense seems logical at the time, but it can be painful in the long run, especially if you put it on credit.

Were you a saver while you were in the military?

  • Jeff: Yes. He was already a financial planner for three years prior to his deployment to Iraq. Jeff shared a story about calling home to buy stock while he was deployed.
  • Ryan: Yes, I was a saver. I was single while I was in the military, and I didn’t have many expenses. I deployed five times in six years, and used the money to fully fund my IRAs, invest in the Thrift Savings Program, and invest in the Savings Deposit Program.

Roth Thrift Savings Plan & Investing

Ryan: The Roth TSP is new, but there are a lot of questions about it. Like IRAs, there are two versions, and they are similar to each other. With the Traditional IRA or Traditional TSP, contributions are made before the income has been taxed. The money grows until retirement age, then it is taxed when you make withdrawals. The Roth TSP and Roth IRA are the opposite. The contributions are made after taxes have been withheld, and you can make tax-free withdrawals in retirement age.

There are some huge benefits to investing in the Roth IRA or Roth TSP. For example, you can make Roth TSP contributions while deployed. The benefit of this is you are making an “after tax” contribution with tax free money. Meaning your contributions will NEVER be taxed – either now, or when you make the withdrawals in retirement age. The other benefit concerns tax brackets. If you are in a lower tax bracket now, the Roth is generally the better way to go. This is because yo will pay a low tax rate now, and avoid taxes later. This is important because we don’t know what tax rates will be when we reach retirement age. Chances are good that taxes will be higher in the future.

Jeff: Jeff gives examples of how turning a $30,000 investment into a $250,000 nest egg that is tax free. It’s an amazing possibility. But it takes the discipline to get started.

Jeff also shared that you don’t need much money do you need to start investing. You can do it with $25 or $50 a month. The key is to make the commitment and get started.

Military Taxes

We covered a few topics for military taxes, including the tax deadlines. It’s important to know that April 15th is the deadline to file and pay anything you may owe to the government. However, you can file an extension which will allow you to file by Oct. 15th, which is the extension deadline. Money due by April 15th, regardless of whether you file an extension.




Military extensions: Military members who ares stationed overseas or deployed are eligible for an automatic extension. However, the IRS may not know you are overseas or deployed, so be sure to file an extension. This is free and easy to do – you can do it with tax software, or by filling out a simple from from the IRS. Here are tips for filing a tax extension.

More tax tips:

Thanks so much to Veterans United for inviting Jeff and I to their Google Hangout

Print Friendly
Date published: March 4, 2013.

Article by

Ryan Guina is the founder and editor of this site. He is a writer, small business owner, and entrepreneur. He served over 6 years in the USAF and also writes about money management, small business, and career topics at Cash Money Life. You can also see his profile on Google

Comments

  1. The TSP is great tool for government employees but I think service members should invest in a Roth IRA before a TSP because the TSP does not match service member contributions. I do agree that service members should have a goal of saving before heading on deployments. Without the expenses of stateside living coupled with hazard pay they should be able to save and invest a good chunk of money.

    • “Without the expenses of stateside living coupled with hazard pay they should be able to save and invest a good chunk of money.”

      This is definitely true for single servicemembers, and was exactly what I did when I went on deployments. Savings don’t necessarily add up as quickly for those supporting a family back home (family members still need to support the homestead). But the added tax free pay, family separation pay, and other benefits still add a significant amount to the bottom line.

      I’m also a big fan of Roth IRAs and recommend them to everyone. For beginning investors in the military, I often recommend the TSP, simply because it is easier for them since they can do it straight from their paycheck and there aren’t too many investment options to choose from (analysis paralysis causes too many people to avoid action). But once people know what they are doing or are willing to take action, I recommend Roth IRAs. Taking action is the biggest step for most people.

  2. Great pointers for military members looking to invest. 100% with Ryan and Jeff about deployments – they were a great opportunity for me to save and invest a lot of money during my 6 year military service.

    I am also a big supporter or Roth TSP/IRA. Most military members find themselves in the bottom 2 tax brackets and can save a lot of money on taxes if they go with Roth. TSP does offer very limited investing choices, but has a much higher contribution limit and can be nicely combined with other investment funds for a well diversified portfolio.

    • Agreed, Anton. There are a few limitations with the TSP, but it works for 99% of the military population. The small percentage of members who needs more advanced investment options can do fine with contributing to an IRA and using their TSP and other investments to round everything out.

      I think the Roth TSP is a great option, too. Unfortunately, I got out before it was available!

Speak Your Mind

*