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Two New Money Rules for Military Families

Kimberly Lankford

Benefit from the new GI Bill and the home-buyer credits.



I get a lot of questions from members of the military about their unique financial issues and benefits (and I’m particularly interested in the topic as an Army wife myself). Our Military Family Money Guide has a lot of information about the tax, insurance, retirement, mortgage and estate planning benefits and financial strategies for service members. But two big rules just changed in the past few months that can make a big difference for military families.

Huge help with kids’ college costs. The new GI Bill, which took effect on August 1, 2009, provides a big boost to military families who are saving for their kids’ college education: Longtime service members can now transfer their GI Bill benefits to their spouse and children. To qualify, you must be on active duty or selected reserve, have served at least six years in the armed forces, and agree to serve four more years (the rules are slightly different if you are eligible for military retirement between August 1, 2009, and August 1, 2013).

Spouses may use the transferred benefits right away; children must wait until you’ve served at least ten years. Service members and veterans (and spouses) must use the benefits within 15 years after leaving the military. Children have more than 15 years but must use the benefits by age 26.

Your spouse and children qualify for the same benefits that you would receive: The GI Bill pays up to the full cost of in-state tuition and fees at the most expensive public college in the state where the student is attending school (you’ll be covered only for the actual cost if you attend a school less expensive than the maxium). The bill provides benefits for up to 36 months, which should be enough to cover a four-year undergraduate program at a college with a nine-month academic year. The program also provides a stipend for housing and books.

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The GI Bill benefits may not cover the entire cost of attending a private college, going to graduate school or paying out-of-state tuition at a public college. But about 1,200 colleges have signed up for the Yellow Ribbon program to cover a large portion of the extra expenses. Your spouse or children who are eligible for your GI Bill benefits are also eligible for the Yellow Ribbon program. For more information about the GI Bill, including a list of schools participating in the Yellow Ribbon program, see www.gibill.va.gov.

If you’ve already served for six years and would like to transfer your benefits to your kids, apply for the transfer as soon as possible rather than waiting until your children are closer to college age so the clock can start ticking on the extra four years of service. The Department of Defense is handling the GI Bill transfer applications; see www.defense.gov/gibill for more information about transferring benefits. Also see Now the GI Bill Is for Families, Too and A Better GI Bill.

Extended deadlines for the home-buyer credits. Members of the military who serve outside the U.S. for at least 90 days between December 31, 2008, and May 1, 2010, have an extra year to buy a home and qualify for the $8,000 first-time home-buyer credit or the $6,500 credit for longtime homeowners who buy a new home. Instead of having to enter a binding contract to buy a principal residence by April 30, 2010, and close on the house by June 30, 2010 -- which is the rule for everyone else -- service members have until April 30, 2011, to sign a contract and until June 30, 2011, to close on the sale.

This extension also applies to members of the Foreign Service and employees of the intelligence community who are serving on official extended duty outside the U.S. In both cases, only one spouse must be serving on official extended duty to qualify for the extension.

Also, most people who sell or cease to use their home as their principal residence during the first 36 months after purchase would be required to repay the credit. But there’s an exception for members of the military, Foreign Service and intelligence community. They are not required to repay the tax credit if they sell their home or stop using it as their principal residence after December 31, 2008, because they received government orders for extended duty (of 90 days or longer or for an indefinite period) at least 50 miles away from their principal residence (whether inside or outside the U.S.) or are residing under government orders in government quarters.

For more information about the special home-buyer credit rules for members of the military, see the IRS’s fact sheet and the IRS Instructions for Form 5405. For general information about the home-buyer credits, see FAQs on the New Home Buyer Credits.

Got a question? Ask Kim at askkim@kiplinger.com.



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