One of the biggest benefits to going on a deployment is the extra income. Tax-free pay, hazard pay, imminent danger pay, family separation pay, and other financial benefits abound. Of course, they don’t make up for the danger of being in a hostile environment or being separated from your family, but the dollars are real and you should use them wisely while you are receiving those benefits.
I highly recommend saving money while deployed, but if you are already doing well in that department, then it is time to start investing your money for growth. The Thrift Savings Plan and military retirement pay are both great benefits, but not everyone reaches the service requirements to earn the military pension and the TSP may not be enough. Here are some places to start investing while you are deployed.
Best investment options for deployed military members
Open a Roth IRA
Roth IRAs are among the best investment options available to military and civilian members alike. Roth IRAs are retirement accounts with a great tax advantage – you make contributions with income that has already been taxed, and you are able to make tax free withdrawals in retirement. But, being deployed has its advantages – your income is already tax-free, meaning you don’t pay taxes on your contributions or withdrawals!
Once upon a time, this prohibited you from making Roth IRA contributions, but the Heroes Earned Retirement Opportunities (HERO) Act was enacted several years ago to allow military members to open IRAs even if 100% of their income was non-taxable due to deployments.
Looking to get started? Here are some of the best Roth IRA companies.
Benefit of Roth IRA contributions in a tax free zone: Tax free contributions with tax free withdrawals.
Contribute to your Thrift Savings Plan
The Thrift Savings Plan is a great benefit available to military members. It functions the same way as a traditional 401k plan: you take pre-tax dollars and invest them without the drag of taxes until you make a qualified withdrawal in retirement years. This is the opposite of a Roth IRA, you don’t pay taxes now, but pay taxes later.
But there is a big difference if you invest in the TSP while deployed. Your contributions are already tax-free, but since your income is tax-exempt, you will not pay taxes on the contributions made while in a tax-free zone. This in effect gives you some tax benefits similar to a Roth IRA.
Your withdrawals in retirement will be less flexible than a Roth IRA, however, and you will still be required to make minimum withdrawals when you reach the required age. Your taxable and tax-free withdrawals will be made in proportion to the contribution amount, meaning you can’t determine how and when you withdraw the tax-free funds (keep in mind these rules are subject to change in the future).
Benefit of TSP contributions in a tax-free zone: Tax-free contributions with tax-free withdrawals.
Participate in the Military Savings Deposit Program (SDP)
The Savings Deposit Program (SDP) is a military investment benefit available only to those currently serving in a designated combat zone. It offers a guaranteed return of 10% interest for deposits up to $10,000. You can start it as soon as you are in-country for 30 days and you can continue earning 10% interest for up to 90 days after you return home from the combat zone.
There are some limitations and inconveniences with the SDP (you can only contribute the amount of your paycheck each month until you reach $10k and you can only leave it in there 90 days after you redeploy), but it is probably the only place in the world right now where you can earn a guaranteed 10% return on investment. There are also some limitations regarding when and how you can withdraw your money from the SDP program.
See your finance department for more information.
Benefit of Savings Deposit Program: Guaranteed 10% interest on deposits.
If you are more concerned with short term investing and having access to your investments in the near future, then you probably want to avoid investing with a Roth IRA or the Thrift Savings Plan because both are retirement accounts which limits availability to your contributions. The Savings Deposit Program also locks your money away without access until you return from your deployment.
If you are looking for a non-retirement investment option and don’t want to lock your money away for the duration of your deployment, then consider investing in stocks or mutual funds. Here is a list of the best brokerage accounts for cheap stock trades, if you are interested in going that route.
Where should military members start investing when deployed?
In my opinion, the first 3 investment opportunities are the best places to start, and I would work toward maxing those out if you can. Of course, that is a lot to ask if you are a junior enlisted member, but I have seen people do it.
The reason Roth IRAs and the TSP are great opportunities is due to their long term tax benefits. You won’t find another opportunity like this ever – civilians aren’t able to contribute to Roth IRAs or 401k plans with tax free contributions and make tax free withdrawals. This is an opportunity you can’t match or beat anywhere! The same goes for the Savings Deposit Program (SDP). A guaranteed return on investment of 10% is unheard of.
Finally, you always have the option of self-directed investments, investing how and where you want, without worrying about the contribution and withdrawal rules of IRAs or the TSP. These investment accounts don’t share the same tax benefits, but they offer more flexibility and are better for short term investing.
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Mark T says
What are the benefits – if any – when you’re deployed State-side? For example, I’m about to be deployed to Ft. Dix, NJ to support the Afghan refugees. Are there any investment benefits in a non-combat zone?
Brittany Crocker says
Hey Mark, I can’t think of any for non-combat active-duty orders, unless you’re eligible for the Savings Deposit Program. https://themilitarywallet.com/military-savings-deposit-program-sdp/ (If you are, you should definitely consider it!) However, if your pay and allowances during your stateside deployment are higher than your normal pay, any surplus you invest will pay off down the line. Consider upping your TSP contributions or depositing some into an IRA or even a CD.
Question on 2019 excess contribution. I’m a reservist that went on active orders and deployed for 4 months. Looking at the end of this year I’m already over the 19k limit for TSP/401k. My first question is whether or not my TSP contributions while I was deployed can be exempted from my 19k limit. The follow up to that would be if not what should I do to avoid the excess contribution penalty?
Mel M says
As I understand it, TSP contributions while deployed are non-taxable (like a Traditional IRA) and when you eventually withdraw the principal associated with the tax-free contributions (as you indicated it is not so clear cut which funds you withdraw are tax-free and which ones aren’t), that would be tax-free as well. Question is, will any earnings be tax-free also? I can only assume that since there’s no “free lunch”, the earnings are taxable for any tax-free contributions made while deployed.
Ryan Guina says
Mel, There is no way for the TSP administrators to know which funds would be considered earnings from the tax-free contributions, since all the funds are placed in one pot of money. All the TSP can do is track which contributions are from taxable income, and which are from non-taxable income. When you make withdrawals, the non-taxable portion will be distributed with your withdrawals on a pro-rated basis. If you have a substantial amount of tax-free contributions, you may find it better to do an IRA rollover after you leave the service. If you do so, your non-taxable contributions can be rolled into a Roth IRA and everything else can be rolled into a Traditional IRA. Just be sure to keep documentation in the event you ever need to show where the funds came from.