How to Make the Most (Financially) Out of Your Military Career
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Why did you join the military? Chances are the answer to that is quite complex. It likely includes a measure of having the desire to serve our country combined with the potential financial benefits of a military career. Succeeding in the military can be a very financially rewarding career path, and it also brings the satisfaction of knowing that you have done your part to serve your country. As a military service member, there are numerous benefits beyond your paycheck that you can also enjoy.
Sadly, many active duty service members and veterans fail to take full advantage of these benefits, and they are, in effect, losing out on important financial perks to their careers. In a 2014 survey, the Washington Post found that over half of the veterans surveyed had not used the benefits outlined in the Post-9/11 GI Bill, and that is just one of the many benefits out there for service members and vets.
The financial benefits of being in the military include many different categories. You can receive benefits in your taxes, pay for your education, cover housing expenses, and help you save more effectively. Are you using these to the fullest extent? This guide will help you see all these potential financial benefits and dig deeper into how to use them to make the most out of your military career.
Tax benefits for members of the military
As a veteran or service member, you have given much of your life to serve our country. You’ve also sacrificed financially during your time in service. As a “thank you,” the government offers many financial benefits to service members and their families. Some of these are tax-related.
For example, some of your pay may not be taxable as a military member. You also have items you can deduct that civilians cannot. Military service members and veterans even have investment tax breaks they can take advantage of to save even more.
To take advantage of all of these tax benefits, you will want to work with an accountant or a tax preparation program that is knowledgeable about these benefits. Still, having an excellent working knowledge of what is available to you will help ensure even further that you get what you are due.
You have earned these tax benefits. It’s essential that you take full advantage of them. Here are some valuable tips to ensure you are not missing any important tax benefits you have earned.
- Know what pay and benefits are taxable and which ones are not. Being in the military does not exempt you from income tax, but some of your pay and benefits can’t be considered “income.” Your basic pay, active duty pay, bonus pay and incentive pay are all taxable income. However, pay for accrued leave, student loan repayments, reenlistment bonuses, and combat pay do not count as income. Allowances, like living and uniform allowances, life insurance payments, and death benefits, are not taxable.
- Use tax-free pay to contribute to savings plans more wisely. If you contribute to an Individual Retirement Account (IRA), you can allow that money to grow tax-deferred. Over the years, you can earn even more tax-free money. In addition, you can use a Roth IRA to grow tax-free income into tax-free withdrawals that you use during retirement. Both you and your spouse can contribute up to $6,000 annually to your IRA. If you’re age 50 or older, the annual limit is $7,000.
- Use non-taxable income wisely. While combat pay and other types of pay or reimbursement may not be taxable, you may wish to include them when calculating your Earned Income Tax Credit. This is particularly true if your combat pay was your only income. If you don’t report it, you may not qualify for the tax credit because you will appear to have had no income.
- File remotely. You don’t have to be in the exact physical location as your spouse to file your taxes. You can have your spouse use a power of attorney to file a joint return on your behalf if you are stationed away from home when it’s time to file taxes.
- Avoid capital gains taxes on a home. If you live in your own home rather than in military housing, you can avoid capital gains taxes if you choose to sell the property. Most of the time, homeowners can sidestep these taxes if they lived in the home for at least two out of the five years before selling it. However, military personnel can suspend this test for up to 10 years, provided they are on qualified duty. Qualified duty means being stationed 50 or more miles from the house for 90 or more days.
- Deduct travel and lodging costs. For those who are reservists, travel is part of the process. You can deduct your travel and lodging expenses if you travel more than 100 miles from home and stay overnight. You can also save half of the cost of any meals during these trips. To do this, keep your receipts so you have proof of what you spent.
- Consider early 401(k) withdrawals. While this might seem like an investment benefit, it’s actually a tax benefit. If you are a reservist who was called to active duty after Sept. 11, 2001, and served for over 179 days, you can withdraw from your 401(k) while on active duty without the typical tax penalties.
- Deduct moving expenses. Members of the military who have a permanent change of station can deduct any unreimbursed moving expenses. You cannot deduct the moving expenses the military pays for.
- Take advantage of tax filing extensions. It’s not easy to file your taxes when you are serving overseas. Those in combat zones are automatically given a 180-day extension for filing their tax returns, paying taxes, and filing a claim for a refund. The only taxes you must pay by the April 15 filing deadline are your Social Security and Medicare taxes. Unlike civilians who take the filing extension, you don’t have to do anything to apply for it, and you won’t pay interest or penalties on taxes you owe. You can also take this extension if you are continuously hospitalized for injuries received while serving.
- Keep your state of residency the same. Being in the military means many moves. If moving and changing your state of residence negatively affects your taxes, you and your spouse can retain your state residency for tax purposes even while stationed elsewhere. This can prevent your current state from taxing your or your spouse’s income, and if the employer does withhold state taxes, you can file a nonresident return to get those refunded. However, you will have to report the income to your state of residency and pay applicable taxes.
- Take advantage of tax filing help. Check with your base to see if you can get free tax preparation help. You can also file electronically through Military OneSource MilTax.
- Understand tax liability forgiveness. If a military member dies while on duty or in support of a combat operation, and that service member owes tax liability, the tax liability is forgiven. If tax liability has been paid, that amount is given back to the surviving family member.
- Understand the taxation of death gratuities. Again, this issue only applies to service members who die on active duty, but it is still an important benefit to understand. If you are killed while on active duty, your survivors receive $100,000 from the government. This death benefit cannot be taxed.
For more information about taxes and the military, visit:
- IRS.gov: Tax Breaks for the Military
- IRS.gov: Armed Forces Tax Guide
- Military Authority: Overlooked Military Tax Deductions
Savings accounts and insurance help
Military life is rarely a walk in the park. You and your family sacrifice so that you can serve our country. For that reason, the government offers several benefits to service members to help repay them for that sacrifice. In addition to tax benefits, military members get several other benefits that help them financially as a thank-you for their service. From savings accounts unique to the military to insurance benefits and reimbursements, you can be set for a promising future if you take advantage of these offerings.
Take full advantage of these programs. You can systematically save for your retirement, make the most out of your investments and ensure you and your family are fully protected against a potential future tragedy.
- Save for retirement with the Thrift Savings Plan – Saving for retirement when you’re in the military is made easier with the Thrift Savings Plan. This savings plan is one of the lowest costs investment options, charging an annual expense ratio of just 0.038 percent, compared to 1 and 2 percent for traditional retirement plans. Choose your index mutual fund, and then invest up to $18,500 (as of 2018) when not deployed or up to $55,000 if you are deployed. Keep in mind that these limits are subject to change based on current government regulations.
- Earn a guaranteed 10 percent on savings. Through the military’s Savings Deposit Program, service members can invest up to $10,000 each time they are deployed. That money is guaranteed to receive 10 percent annual interest, which compounds each quarter.
- Use Roth IRAs to your advantage. For military members, a Roth IRA works the same as a civilian. You contribute income, then take it out tax-free. However, because you have tax-free income, you have a bonus. If you are receiving tax-free income because you are in combat, pour some of that money into your Roth IRA. Since Roth IRA savings come out without tax, you will get a double benefit. The income itself isn’t taxed, and the withdrawals are not taxed either. Contribute up to the $6,000 allowed annually (as of 2022) to get the most out of this benefit.
- Purchase Servicemembers Group Life Insurance. Military members have access to one of the most affordable life insurance options. First, it does not require any health or age screening, and the likelihood of a future deployment has no impact. Second, the policy costs only 7 cents per $1,000 of coverage (up to $400,000 total). The program also allows service members to purchase up to $100,000 for their spouses for very little money.
- Understand the Traumatic Injury Protection Program. The Traumatic Injury Protection Program is part of the Servicemembers’ Group Life Insurance plan. This automatic coverage provides short-term financial help to anyone who is severely injured, whether in the line of duty or when off duty. This is an automatic offering to anyone with the Servicemembers’ Group Life Insurance policy who suffers a traumatic injury before leaving the service.
- Take advantage of interest rate caps. Under the Servicemembers Civil Relief Act, you can have an interest-rate cap of 6 percent on any loans you took out before you were sent to active duty. You must apply to your lender to take advantage of this benefit. This helps free some wiggle room in your budget if you have less money coming in or more expenses to pay while you are deployed.
- Consider additional military-specific insurance products. Companies like USAA offer lower-cost insurance products for members of the military. Use these for auto insurance, home and property insurance, rental property insurance, and more!
- Understand your medical insurance benefit. Members of the military are insured through Tricare. Learn how these benefits work and use them to their full potential.
- Take advantage of retirement benefits. After 20 years of service, you can retire with full retirement benefits. If you choose to retire after 15 years of service, you can receive either a $30,000 bonus and 40 percent of your highest pay or no bonus and 50 percent of your highest pay.
Home loans and living expenses
In the military, you receive savings, tax, and housing benefits. Housing options can help active duty military members face the constant reality of the potential change of station notifications. Military housing benefits include the ability to live on base housing and several benefits for those who purchase or rent a home off base. The benefits also include allowances and reimbursement for moving expenses. Military housing benefits are intended to ensure that soldiers, veterans, and their families always have a safe and affordable place to live.
However, navigating the many options for housing benefits isn’t always easy. Also, determining which one is right for you is a challenge. Here are some steps you can take to ensure you are taking advantage of all the potential housing benefits available to you:
- Consider on-base housing. On-base housing is a good choice for many members of the military who do not feel they are in a position to purchase a home or want to avoid the frustration of trying to sell or rent a home if they need to move. When you live in on-base housing, many of the amenities of a city will be available to you on the base, and you can feel almost like you are living in a small military-only town. These homes do not require rent or mortgage payments. When you live on base, your utilities will likely be covered as well, if you do not go over 10 percent of the average energy usage for your area. Home upkeep is also the responsibility of the base, not you.
- Take a Basic Allowance for Housing. You can take a Basic Allowance for Housing if you wish to live off base. This money will be used to pay rent or mortgage payments for your housing. Sometimes, if you find a frugal home, you will find that the BAH is more than your housing expenses, giving you money to add somewhere else in your budget.
- Save on Homeowners and Renters Insurance – With programs like USAA, military members can save on renter and homeowner insurance simply because of their military status.
- Use Overseas Housing Allowance when it applies to you. This allowance is reimbursement for housing costs for those who are stationed overseas and who do not have government access to leased or on-base housing options. It will cover all or a portion of your housing costs.
- If you qualify for OHA, consider the Move-In Housing Allowance. Only for those moves eligible for OHA, the Move-In Housing Allowance will help cover the move-in costs of your new housing. This may include modifications to the dwelling to make it safe for military members, rental agent fees, non-refundable deposits, installation of utilities or appliances, and similar move-in costs. It does not cover move-out costs.
- Take advantage of the Family Separation Allowance. In instances where you cannot take your family with you to your permanent duty station, which may occur if you are on duty on a ship, a family member has a medical condition and cannot move, housing is unavailable, or transportation isn’t authorized, you will receive a flat monthly rate payment to cover the separation. Make sure you take advantage of this.
- Decide which type of move is right for you. When you receive a PCS, you can have the military pay for your move or pay for it yourself (personally procured) and ask for a reimbursement. While the second option requires more work, it may save you money. You will be paid the flat rate for the move that the military expects it to cost, and you can keep any extra that you save by finding a lower-cost option.
- Know what moving expenses are covered. Typically, the military will pay for the actual cost of the move, shipment of your personal items, personal and dependent travel, and any temporary housing you need to take. At the same time, you look for a house or wait for on-base housing to be ready.
- Use the Dislocation Allowance when you have to move. This allowance is paid once per PCS move and will help cover some of your moving costs. This is in addition to the other moving reimbursements you may receive.
- Request Advance Pay. If you have PCS orders, you can ask for advance payment for up to three months of your basic pay. This may give you some of the money you need to pay for moving expenses upfront before you get the reimbursement or to cover your spouse’s lost income while they look for work at your new location. This advance is based on the approval of your immediate command. While you will not pay interest on advance payments, it will be taken from your future paychecks. You still are required to pay advance pay loans back if you leave the service before you have finished paying the advance.
- Understand and use the VA Home Loan program when applicable. When you are ready to buy a home, consider whether or not you qualify for the VA Home Loan program. This home loan is designed for veterans and offers a no-down-payment, low-interest-rate government-backed loan. Though it is intended for qualified veterans, the VA Home Loan program is also offered to active-duty service personnel with 90 days of consecutive active duty or six credible years in the Selected Reserve or National Guard.
Education and career services
One of the perks that cause many people to consider a military career is the educational benefit service members receive. When you are in the military, you may be able to get most of your education expenses paid for. Existing college debt, future college tuition, and even living expenses while in school are all potentially covered because you are in the military. Not only that, but your family members may also receive benefits for their education. When you are ready to transition to civilian life, you will find several benefits and resources that will help you transition to a civilian career more quickly.
Understanding these benefits is the key to using them well. Here are some steps to ensure you take full advantage of your military education, career benefits, and all they offer your family.
- Take advantage of Tuition Assistance. Tuition assistance can pay up to 100 percent of your tuition expenses. This is limited to $250 per credit hour or $4,500 per fiscal year per student. If you are a full-time duty military member, no matter your branch, you will qualify for this. Tuition Assistance amounts for Reserve and National Guard members will vary.
- Understand the changes that came with the Post-9/11 GI Bill. After 9/11, the new GI bill stated that qualified veterans could receive full payment for public state undergraduate tuition and fees, along with an allowance for books and other supplies and a living stipend. To qualify, you must have served at least 90 days of continuous service after Sept. 10, 2001.
- See if your private college or university participates in the Yellow Ribbon Program. This program allows colleges or universities to offer to waive some of your educational costs if those costs are higher than what the Post-9/11 GI Bill allows for. The VA gives incentives to schools to provide the Yellow Ribbon Program. Since private colleges often cost much more than in-state public schools, this can allow you to pursue the degree you want from the school of your choice at less cost.
- Apply for loan repayment programs. If you enter the military with a college loan you took out before your service, you may qualify for help paying down that debt from your service branch. Each branch has its maximum loan repayment amount, which can help significantly.
- Test out of programs after your military service. You will learn many skills while in the service, and some of these skills may allow you to test out of required college classes. The College Level Equivalency Program (CLEP) General Exams and Subject Exams may let you get college credit for the skills you have already learned. The DANTES Subject Standardized Test is another option. You can also take Excelsior College Exams to earn actual credits from Excelsior College that can transfer to your chosen school.
- Have your spouse take advantage of the Military Spouse Career Advancement Accounts (MyCAA). This program offers up to $4,000 in tuition assistance for spouses pursuing a degree in a portable career.
- Have your children or spouse use the Survivor’s and Dependents’ Educational Assistance program. The DEA offers tuition assistance to survivors and dependents of service members killed or permanently disabled in the line of duty.
- Get tutoring if you need it. If you are receiving educational assistance through the VA and need tutoring, you can get a monthly stipend to cover the cost of your tutoring.
- If you are considering a trade career, consider on-the-job training or apprenticeships. The VA offers these programs to qualified veterans interested in learning a trade or skill that is not taught through formal classroom instruction. Veterans who choose this route can use their GI Bill benefit to receive a tax-free stipend while in their apprenticeship to help them pay for living expenses while they learn.
- Learn about transition programs. Moving from active duty to civilian work is not always easy. Transition programs help you get through this process and into a rewarding career. Options include resume writing help, interviewing training, networking workshops, and job skills assessments.
- Translate your military skills into the skills needed for civilian jobs. Sometimes the work you did in the military translates well into a civilian job, but it is called something different. Vets.gov maintains a military skills translator that lets you plug in your military skills to see what they are called in the civilian work world. This can help you update your resume and cover letter with the terms hiring managers want to see.
- Get preference for specific federal jobs. The US Department of Labor gives preferential treatment to some members of the military who are searching for work. Use the resources and apply for jobs through this program.
- Transfer unused Post-9/11 GI Bill benefits to your children or spouse. If you have a new education benefit offered under the Post-9/11 GI Bill, you can transfer it to qualified dependents, such as your child or spouse, to cover their educational expenses.
Keep your finances under control by utilizing these resources
Yes, being in the military involves sacrifice, but you have benefits in return. Take the time to learn about your potential military financial, educational, tax, and housing benefits. Research these benefits carefully and apply for those you qualify to receive. After all, you earned or are earning these benefits with your service. Make sure you are getting the full amount you deserve.