Military families have unique financial benefits and needs. If you're in the military, here are few moves to cross off your personal checklist.
Continue Reading Below
1. Contribute to a Thrift Savings Plan
Thrift Savings Plans work just like 401(k) plans, only they're designed for federal employees, military members included. The benefit of the Thrift Savings Plan is twofold. First, you get an immediate tax break on the funds you contribute, and secondly, you get the option to invest that money at an extremely low cost. With a 401(k), by contrast, you'll often lose a chunk of your earnings to fees.
The annual contribution limits for Thrift Savings Plans are similar to those of the 401(k). For the current year, you can put up to $18,000 of tax-free money into your account if you're under 50. If you're 50 or older, you get a $6,000 catch-up that raises this limit to $24,000. Furthermore, come 2018, the annual contribution limit will increase to $18,500 for younger savers, or $24,500 for those 50 and over. This means that you have a real opportunity to snag some extra tax savings by contributing the max.
2. Consider a Roth-style Thrift Savings Plan
The benefit of contributing to a traditional Thrift Savings Plan is that you'll get an immediate tax break for the money you put in. But since military members already get a host of tax benefits, such as tax-free housing and food allowances, you may not need the tax break immediately. On the other hand, once you're older and are no longer in the military, you might see your tax bracket go up, and that's why funding a Roth Thrift Savings Plan is a very wise move.
Continue Reading Below
Though Roth contributions don't result in an instant tax break, withdrawals from your Thrift Savings Plan can be taken tax-free once you reach age 59-1/2. With a traditional Thrift Savings Plan, you'll pay taxes on those distributions. If your tax burden isn't particularly heavy at present, and you want to avoid paying taxes in the future, then a Roth Thrift Savings Plan is the way to go.
3. Do some estate planning
Though estate planning is crucial for civilian workers too, it's especially important that military members -- particularly those likely to wind up in combat situations -- get the right documentation in order. If you don't have a will in place, be sure to have one drafted immediately. And if you have a will that's older, make sure your beneficiary information is up to date. The same holds true for beneficiary designations on your life insurance policy and retirement accounts.
4. Prepare for deployment
Getting your present-day finances in order can make deployment less stressful for you and your family. If you expect to be deployed in the near future, review your finances and tackle any outstanding issues you've yet to resolve. For example, if you've noticed an error on your credit record, report it before you leave. If you have outstanding bills, get them paid. Better yet, set up an automatic payment system for your recurring expenses so that you don't have to worry about being late on your bills.
Finally, consider creating a power of attorney for your spouse or another trusted family member. This way, that person will have the authority to make financial decisions in your absence.
5. Explore your G.I. Bill benefits
The G.I. Bill is designed to help military members pursue higher education. Specifically, the Post-9/11 G.I. Bill provides educational benefits for those who serve on active duty for 90 days or more after Sept. 10, 2001. The extent to which you're eligible for those benefits depends on the total time you serve, but if you remain on active duty for at least 36 months, the bill will cover the full cost of in-state tuition and fees at a public college for up to four academic years, plus a stipend for housing and books. If you're a longtime military member, you may be eligible to transfer your benefits to your spouse or children, so it pays to read up on how the bill works.
Though there are benefits to serving your country, there are also some financial challenges you might encounter in the course of military life. Be vigilant about your finances, and with any luck, you'll come to enjoy the long-term stability you deserve.
The $16,122 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,122 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.