Becoming a member of the military is not only a short-term experience where you can learn life skills and defend your nation during times of conflict, but you can also have a wonderful career, build a life, and grow your wealth with the financial and money saving opportunities that become available to service members and veterans. Growing wealth requires patience, discipline, and a financial strategy. Joining the military and deciding to make it a career has many benefits that you can make work for you. Here are 10 tips for managing finances and potentially growing wealth throughout your military career.
1. The military can help pay for college
If you are in the military you will have access to certain educational opportunities to save money, such as the GI Bill. The GI Bill programs are administered by the military and the Department of Veterans Affairs (DVA). Soldiers may be able to receive up to 36 months in a DVA educational assistance program and a maximum of 48 months of combined benefits if eligible for two or more programs. Some of these options include:
a. GI Bill-Selected Reserve Chapter 1606 (The Montgomery GI Bill) – Provides up to 36 months of education benefits to members of the Selected Reserve.
b. GI Bill Kicker – Offers a maximum of 36 months of benefits up to $200 or $350 per month depending on the contracted rate.
c. GI Bill-Active Duty Chapter 30 – Offers educational benefits on a monthly basis to service members and veterans who have at least two years of active duty.
d. Post-9/11 GI Bill Chapter 33 – Provides a maximum of 48 months of benefits to help pay for school or job training if you served on active duty after September 10, 2001.
e. Transfer of Education Benefits (TEB) Post-9/11 GI Bill – As a soldier you can request a transfer of up to 36 months of unused benefits to your eligible immediate family members.
f. Yellow Ribbon Program – Can help you pay for higher-out-of-state, private school, foreign school, or graduate school tuition and fees that the Post-9/11 GI Bill doesn’t cover. To be eligible for this program you must qualify for the Post-9/11 GI Bill at the 100% benefit level.
2. Thrift Savings Plan (Traditional TSP) & (Roth TSP)
Members of the military who began serving on or after January 1, 2018, are automatically enrolled in the TSP (or will) once you had served 60 days and 3% of your basic pay is deducted from your paycheck each pay period and deposited in the traditional balance of your TSP account, however, you can elect to change or stop the contributions.
The TSP is a defined contribution plan. If contributions from basic pay are made, one to 100 percent of any incentive pay or special pay (including bonuses) can also be contributed, up to the established limits of $22,500 in 2023. If you are an eligible soldier age 50 or older or turning 50 during the calendar year, you are allowed catchup contributions of up to $7,500 for 2023.
All the money contributed belongs to the beneficiary, even if 20 or more years wasn’t served, as was the previous custom to be eligible to receive uniformed services retired pay.
Soldiers are also able to contribute to a Roth TSP. Roth contributions can be automatically deducted from the paycheck after income is taxed. Withdrawals from a Roth TSP are tax-free, and earnings on contributed funds are also not taxed if the soldier is at least 59 ½ or disabled, and the withdrawal is made at least five years after the beginning of the year in which the first Roth contribution was made.
3. High-interest savings accounts
If you were a member of the military who was deployed in a Savings Deposit Program-eligible combat zone for at least 30 days or one day in three consecutive months can open a Savings Deposit Program account. Interest accrues in these accounts at an annual rate of 10% and compounds quarterly.
4. Take advantage of discounts offered
Hundreds of companies offer military discounts to service member, veterans, retired military, spouses and their families. When making purchases of any kind, it may be beneficial for soldiers to request about military discounts, everything from phone plans, to restaurants, hotels, airfare, rental cars, and many more.
A TRICARE Health Plan is excellent insurance coverage. There is TRICARE Select and TRICARE Prime and what you have depends on whether you are active duty or a retired service member and their family. Active duty soldiers receive TRICARE Prime and there are no network or out-of-network charges. An active duty soldier cannot have TRICARE Select. Please review the schedule below to become familiar with the different charges.
Out-of-Pocket Cost Tricare Select Tricare Prime
Primary Care Network: $25 $0
Specialty Care Network: $37 $0
Emergency Room Visit Network: $103 $0
Urgent Care Center Visit Network: $25 $0
CHAMPVA benefits are offered to a spouse or surviving spouse of – or a child of – a Veteran with disabilities or a Veteran who has died, who don’t qualify for TRICARE. There are a number of services covered including, ambulance service, ambulatory surgery, durable medical equipment (DME), family planning and maternity, and a number of others.
Medical expenses can be expensive, however, military families can save quite a bit of money with the high-quality and low cost care. The money saved can be invested or put towards an asset like real estate. Members of the military also get home loan benefits.
6. Home Loan
Veterans, Service members, and eligible surviving spouses can get housing assistance through VA Home Loans. Minimum requirements for eligibility will depend on several factors including when you served and for how long. The main benefits of the VA Home loan include:
- No down payment required
- Low interest rates
- Limited closing costs
- Private Mortgage Insurance (PMI) required
A VA home loan is a lifetime benefit. You can use the guaranty several times.
7. Burial Costs
The VA will pay up to $2,000 toward burial costs for deaths on or after September 11, 2001, or up to $1,500 for deaths prior to September 11, 2001. Should the veteran decide to be buried in a VA national cemetery, a portion or all of the cost of transporting the deceased may be reimbursed.
8. Pay Down Debts
One obstacle to building wealth is trying to get out of debt. If you can find a way to begin paying off your debts, the sooner you can work toward your financial goals. A few ways of accomplishing this seemingly impossible challenge is to break it apart into categories based on importance. First, it is recommended to pay off your high-interest debts first. There are multiple strategies you can use including,
- The debt snowball method – Pay the smallest debt as fast as possible. Pay minimums on all other debt. Then pay that extra toward the next largest debt.
- The debt avalanche method – Pay the largest or highest interest rate debt as fast as possible. Pay minimums on all other debt.
- Debt consolidation – This technique requires consolidating debts into a single payment. I may be a good technique for eliminating debt if you can get a low interest rate, however, this process may lower your credit score for a period of time.
After paying off your credit card or personal loan debt with a high interest rate you may consider working on your car debt and then your student loan. Once they are cleared off you can focus on paying off your home. Breaking debts apart in to different stages may help to lower some of the stress that comes along with this financial burden.
After serving for 20 years, active-duty soldiers can start pension payments which are typically around 40% of your highest basic pay while serving at any age they choose. Army Reserve and Army National Guard Soldiers must wait until age 60 to claim theirs.
10. Consult a financial professional
When it comes to creating a financial strategy, and with so many moving parts to consider, getting the help you need from a financial professional is highly encouraged. Managing the risk and figuring out your risk tolerance and the impact certain decisions will have on your financial plan could help you recognize challenges before they arise, overcome obstacles, and potentially grow your wealth.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by LPL Marketing Solutions
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