How to Invest Your SGLI Payout Without Taxes

If you’re a survivor of a fallen service member and don’t have an immediate need for your ServiceMembers Group Life Insurance (SGLI) payout, you can accrue significant tax benefits by investing the life insurance money into Roth IRAs or Coverdell Education Savings Accounts (ESA). 
Advertising Disclosure.

Advertiser Disclosure: Opinions, reviews, analyses & recommendations are the author’s alone. This article may contain links from our advertisers. For more information, please see our Advertising Policy.

The Military Wallet has partnered with CardRatings for our coverage of credit card products. The Military Wallet and CardRatings may receive a commission from card issuers. Some or all of the card offers that appear on The Military Wallet are from advertisers. Compensation may impact how and where card products appear, but does not affect our editors’ opinions or evaluations. The Military Wallet does not include all card companies or all available card offers.

folded flag at military funeral

If you’re a survivor of a fallen service member and don’t have an immediate need for your ServiceMembers Group Life Insurance (SGLI) payout, you can invest your life insurance money to provide for your retirement or your child’s education.

The HEART Act, passed in 2008, expanded tax relief options for service members, their families and survivors.

Under the law, SGLI investments aren’t subject to normal contribution limits and taxes. So, you can accrue significant tax benefits by investing all or part of the insurance payout into a Roth IRA or a Coverdell Education Savings Account (ESA).

Here’s how it works.

Investing Your SGLI Payout in a Roth IRA

A Roth IRA is an Individual Retirement Account (IRA) where your contributions and earnings can grow tax-free

Normally, Roth IRAs have contribution limits, but the HEART act relaxed the rules for survivors of fallen service members. 

You may be able to invest your entire military life insurance payout – up to $500,000 if you received the maximum $400,000 SGLI benefit and the $ 100,000 death gratuity. 

You don’t need to worry about losing access to your SGLI benefit by investing it.  Under the law, the normal five-year waiting period to withdraw your money doesn’t apply to your SGLI contributions. 

“(Survivors) can be nervous about not having access to their SGLI proceeds if they put it in a Roth IRA,” said Mark Dunlop, a certified financial planner and financial counselor for Survivor Outreach Service. “I assure them that they can always take out their basis without penalty or taxes.”

You can immediately withdraw these contributions, but earnings from your initial contribution must remain in your IRA until you turn 59 ½ to avoid taxes. (You may qualify for tax-free withdrawals for birth or adoption expenses, the purchase of your first home, or other circumstances.)

Investing Your SGLI Payout in a Coverdell ESA

A Coverdell ESA is an Education Savings Account (ESA) used solely to fund a beneficiary’s education. As with the Roth IRA, the Heart ACT relaxed the contribution rules for survivors while contributions and earnings grow tax-free.

If you are looking at funding some or all a child’s education, the Coverdell ESA may make sense. Coverdell ESAs allow you to avoid taxes on investments, so long as the distributions fund students’ qualified education expenses.

Qualified education expenses include tuition, fees, books, school supplies and other equipment. An ESA can cover expenses from the time a student is in kindergarten all the way through college. Coverdell ESAs can also be used for graduate school, but the student must empty the account by age 30.  

Rules for Investing Military Life Insurance

You must invest your SGLI proceeds in a Roth IRA and/or a Coverdell ESA within one year of receiving them. 

Your total contribution to both can’t exceed the SGLI proceeds received.

The Roth IRA and Coverdell ESA are great options to reduce your tax liability, but they have different purposes and limitations. 

Survivors should plan based on their individual goals. When in doubt, consult a qualified tax professional (EA, CPA, etc.) or a Certified Financial Planner.

About Post Author

Get Instant Access
FREE Weekly Updates! Enter your information to join our mailing list.

Reader Interactions

Leave A Comment:


About the comments on this site:

These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

The Military Wallet is a property of Three Creeks Media. Neither The Military Wallet nor Three Creeks Media are associated with or endorsed by the U.S. Departments of Defense or Veterans Affairs. The content on The Military Wallet is produced by Three Creeks Media, its partners, affiliates and contractors, any opinions or statements on The Military Wallet should not be attributed to the Dept. of Veterans Affairs, the Dept. of Defense or any governmental entity. If you have questions about Veteran programs offered through or by the Dept. of Veterans Affairs, please visit their website at The content offered on The Military Wallet is for general informational purposes only and may not be relevant to any consumer’s specific situation, this content should not be construed as legal or financial advice. If you have questions of a specific nature consider consulting a financial professional, accountant or attorney to discuss. References to third-party products, rates and offers may change without notice.

Advertising Notice: The Military Wallet and Three Creeks Media, its parent and affiliate companies, may receive compensation through advertising placements on The Military Wallet; For any rankings or lists on this site, The Military Wallet may receive compensation from the companies being ranked and this compensation may affect how, where and in what order products and companies appear in the rankings and lists. If a ranking or list has a company noted to be a “partner” the indicated company is a corporate affiliate of The Military Wallet. No tables, rankings or lists are fully comprehensive and do not include all companies or available products.

Editorial Disclosure: Editorial content on The Military Wallet may include opinions. Any opinions are those of the author alone, and not those of an advertiser to the site nor of  The Military Wallet.