Some are exclusively accessible to active-duty military personnel.
Because of the limited amount of free time afforded to those who serve in the armed forces, it can be challenging to conduct proper research and select appropriate investments. The good news is that there are many possibilities for you to save money and make investments that can assist you in preparing for a pleasant future – without adding a significant amount of time or worry to your already hectic schedule. The following list provides armed forces members with five excellent investing options to explore.
KEY TAKEAWAYS
- Members of the armed forces have access to a wide variety of financial savings and investment alternatives, some of which are not available to the general public.
- The Thrift Savings Plan (TSP), which the federal government offers, is comparable to 401(k) plans in that it allows for automatic payroll deductions,how much is $20 an hour annually and matching contributions.
- Traditional and Roth individual retirement accounts (IRAs) offer a diverse selection of possible investments, making them a potentially valuable addition to a tax-favoured retirement plan (TSP).
- Purchasing real estate, participating in the Savings Deposit Program, or participating in one of the 529 college savings plans are some more investing options.
Federal Thrift Savings Plan
Federal employees and military members can participate in the Thrift Savings Plan (TSP), a qualified retirement plan that offers a low-cost and tax-advantaged alternative to investment. You can customise your portfolio by choosing from various investment options, including short-term U.S. Treasury bonds, index funds, and life-cycle funds, the latter of which automatically rebalances your holdings as you get closer to retirement.
You have a choice between two different tax treatments for the payments you make to your TSP:
- Traditional TSP: This type of pretax plan provides you with a tax deduction in the year you contribute; nevertheless, you will be required to pay taxes on the funds you withdraw during retirement.
- Roth TSP— This after-tax plan does not provide you with any tax benefits upfront, but qualifying withdrawals are exempt from tax after retirement.
Check out the contribution comparison calculator on TSP.gov if you are confused about which choice is best. It will help you determine which path makes the most financial sense.
The maximum amount that can contribute to a TSP in 2021 is $19,500; this amount will increase to $20,500 in 2022. If you are 50 or older in 2021, that number rises to $26,000, and it continues to grow to $27,000 the following year. You can receive up to 5 percentage points more in matching contributions from the military if you are a participant in the Federal Employees Retirement System (FERS) or the Blended Retirement System (BRS).
You will receive a dollar-for-dollar match on the first three per cent of your pay that you contribute to the TSP and a game of fifty cents on the dollar for the subsequent two per cent of your income. Because the amount of the match is proportional to the amount of money saved, it is in your best interest to put in the maximum amount you can, if at all possible.
You can “set it and forget it,” similar to how a 401(k) works because you can arrange for deposits to be deducted automatically from your salary. This makes it simple to save money. Before you cash your first check, it’s a smart move to set up automatic deposits; in this way, you’ll ensure that you never lose any of the money.
Individual Retirement Accounts (also known as IRAs) (IRAs)
Even if you contribute the maximum allowed to your 401(k) or other workplace retirement plan, you can still save money in an individual retirement account (IRA). An Individual Future Account (IRA) is a terrific method to augment your Thrift Savings Plan (TSP) and help assure a secure retirement for yourself.
IRAs can either be traditional (which deducts taxes at the time of contribution) or Roth (which removes tariffs only after withdrawal). Generally speaking, individual retirement accounts (IRAs) provide more flexibility than tax-deferred savings plans (TSPs) due to the extensive range of investment options. Nevertheless, the maximum allowable contributions are far less. For 2021 and 2022, the total amount you can contribute to your IRA is $6,000 (or $7,000 if you are at least 50 years old).
529 College Savings Plans
If you have children and believe that you may have to pay for their education in the future, then investing in a 529 plan may provide you with a tax advantage. Can now use the A 5129 method to pay for elementary school, middle school, and high school tuition and fees by new tax rules enacted in 2017 and 2019. Although donations are not deductible for federal tax purposes, more than 30 states currently provide tax credits or deductions for charitable gifts. When money is withdrawn from a 529 plan and used to pay for qualified education costs, the withdrawals are exempt from taxes.
Can make contributions to a 529 plan in any amount. However, federal gift taxes may need to be paid on amounts that exceed the yearly exclusion threshold of $15,000 per recipient in 2021 (the exclusion amount will increase to $16,000 the following year). The majority of programmes allow you to set up automated investments, which makes it simple to maintain your regimen.
Savings Deposit Program
The Savings Deposit Program (SDP) of the United States Department of Defense offers a guaranteed yearly return of ten per cent on deposits of up to ten thousand dollars made by military personnel serving overseas in areas designated as a combat zone. You must have been receiving Hostile Fire Pay and deployed for either 30 consecutive days or at least one day per month for three consecutive months to qualify for this benefit. You will continue to earn interest at the rate of ten per cent for ninety days after you have returned home unless you request to withdraw your money earlier.
Keep in mind that you will report any income you receive from the SDP on a 1099-INT form when you withdraw funds from the plan. This means that you may be responsible for paying taxes on the earnings from the program, even if the extra $1,000 helps you out.
Real Estate
Investing in real estate can be a great strategy to diversify your portfolio and earn higher profits. The downside is that it involves a higher level of risk (and work) than investments with a lower level of risk. Despite this, investments in real estate come with several perks, the most notable of which are tax breaks and recurring passive income. The purchase of a home to rent it out is a systematic strategy for real estate investment (some service members buy property near their bases to make managing the rentals easier).
Another popular choice is a real estate investment trust (REIT). A real estate investment trust (REIT) is an organisation that owns, manages, or finances properties that generate revenue. Investors can purchase publicly traded REIT shares with a taxable brokerage account or an individual retirement plan (IRA). As a matter of law, real estate investment trusts (REITs) must distribute ninety per cent of their annual profits to shareholders in the form of dividends. This can lead to high dividend yields for investors.
Assistance with Investing from the SEC
The United States Securities and Exchange Commission (SEC) urges armed forces members to contact them if they have any queries about investing or want information on how to check the licencing or registration of an individual or a company. You can do this by sending an email to Help@SEC.gov or by phoning the toll-free investor support line of the SEC, which can reach at 1-800-732-0330 (dial 1-202-551-6551 if calling from outside the United States).
The Securities and Exchange Commission is an active member of the Financial Readiness Network, which the Department of Defense sponsors. The SEC also frequently hosts investor education briefings on military bases. If you are interested, please send an email to Outreach@SEC.gov.
The Crux of the Matter
Bear in mind that there are many other options available for saving money and investing, such as U.S. Savings Bonds (the Series I Savings Bonds currently pay 7.12 per cent interest through November 2022), as well as Servicemembers’ Group Life Insurance.
In addition, members of the armed forces have access to programmes that, while not being investments per se, can help them save money. Mortgages, for instance, can be obtained through the VA Home Loan programme with no initial payment required, low-interest rates, reduced out-of-pocket expenses, and no requirement for private mortgage insurance (PMI).
Additionally, the Post-9/11 GI Bill will pay the total cost of in-state tuition and fees at public universities for up to 36 months. Additionally, the Post-9/11 GI Bill will pay up to $26,042.81 per year for tuition at private colleges and international schools. Suppose you are from a rural region and relocate away to attend school. In that case, you may be eligible for financial assistance to cover the costs of books, supplies, and moving and accommodation (provided that you attend school more than half the time). Veterans who have served for a significant amount of time can have their benefits transferred to a spouse or child.
FAQs
What Kinds of Investments Are Available to Service Members?
Families of service personnel have access to the same assets as civilians and a few investments that are only available to federal government employees and military families.
Are Members of the Armed Forces Eligible to Invest in Stocks?
Yes, armed forces members are permitted to create taxable brokerage accounts, which allow them to purchase and sell stocks, exchange-traded funds (ETFs), and other types of assets
How Many Years of Service Do I Need to Have Completed Before I Can Apply for a Pension?
To become eligible for the lifetime monthly annuity, you must have completed at least 20 years of service. Your benefit is determined by the amount you earned and the number of years you served in the military. When you first enlist in the military, you will determine which technique is used to calculate your benefits precisely.
