10 Best Financial Benefits for Military Families
Service members face a range of threats – from the lethal to the financial. A wide array of generous benefits and programs are meant to offset some of the risk.
Members of the military have a lot of special financial challenges that most people don’t encounter. However, they have access to many special benefits, tax breaks and legal protections.
Here are 10 of the top financial benefits available to service members and how to make the most of them to improve your family’s financial future. The co-authors of this piece, Kim Lankford and Lisa Gerstner, have direct experience: Kim’s husband was an Army doctor for 21 years and was deployed three times, and Lisa’s husband is an Air National Guard instructor pilot who has flown more than 200 combat missions. Many of these resources and benefits have helped their families significantly over the years.
Low-Cost Retirement-Savings Plan
Service members have access to one of the lowest-cost retirement-savings plans around. The funds in the Thrift Savings Plan charge annual expense ratios that range from 0.049% to 0.068% of assets – whereas annual fees and expenses for 401(k) plans range, on average, between 1% and 2%.
The TSP lets you choose among five index mutual funds or a target-date fund, which automatically becomes more conservative as your retirement date gets closer. In 2021, you can put as much as $19,500 in the TSP – and as much as $58,000 if you’re receiving tax-free income while deployed. For 2022, the maximum contribution is $20,500, or $61,000 for deployed service members earning tax-free pay. You have access to a Roth TSP, too, which is like a Roth IRA, but without the income restrictions. See www.tsp.gov for details.
10% Guaranteed Return on Savings
- The military’s Savings Deposit Program lets deployed service members invest up to $10,000 in the program each time you are deployed. You receive 10% annual interest, compounded quarterly; the program lasts for up to three months after your return.
To put that in perspective: The average interest rate on a regular savings account these days is less than 0.1%. The SDP rate is more than 100 times higher.
Your take-home pay increases while you’re receiving tax-free income during service in a combat zone, which can help you afford to stash extra money in the SDP. For more information, see the Savings Deposit Program page at the Defense Finance and Accounting website.
Tax-Free Roth Deposits
For most people, contributions to a Roth IRA are not shielded from taxes. But for service members receiving tax-free combat-zone pay, your money goes into the Roth tax-free, and your contributions as well as your earnings come out tax-free, a double tax benefit that’s tough to beat.
You can contribute up to $6,000 in 2021 if your income doesn’t exceed certain limits; the 2022 maximum contribution is also $6,000 for those with incomes below certain thresholds. And if your spouse doesn’t work, you can contribute up to the maximum on his or her behalf, too.
Free College for Yourself or a Spouse or Kid
- The Post-9/11 GI Bill covers the full cost of in-state tuition and fees at public colleges for up to 36 months (four academic years), or up to $26,043 per year for private colleges and foreign schools. You’ll also get a housing stipend and money for books and supplies.
The money may be used for undergraduate or graduate programs, or for certain programs at vocational and trade schools. And one of the best features of the Post 9/11 GI Bill is that longtime service members may transfer their benefits to a spouse or children. Get more details on the Post-9/11 GI Bill at the Department of Veterans Affairs website.
Inexpensive Life Insurance
Service members have access to one of the lowest-cost life insurance programs available. Servicemembers’ Group Life Insurance costs only $300 a year for the maximum $400,000 in benefits -- regardless of your age, health or likelihood of being deployed. (For comparison, a healthy 40-year-old man pays an average of nearly $500 a year for a private $500,000, 20-year term insurance policy, according to Policygenius.)
Service members can also get $100,000 in coverage for a spouse for as little as $54 a year if he or she is under age 35 (more for older spouses). See the Department of Veterans Affairs site for more information.
State Tax Breaks
The law allows service members to maintain legal residence in one state even if they are stationed in another. So if your legal residence (also called domicile) is a state that has no income tax, you can be shielded from taxes if you move to another state while on active duty.
A spouse who has the same domicile as a service member can also maintain that legal residency if the couple moves to a new state under military orders.
Special Legal Protections
The Servicemembers Civil Relief Act provides special legal benefits for service members, including an interest-rate cap of 6% on any loans you took out before you were called to active duty. This cap is especially helpful for members of the Reserves who are called to active duty and have to take a pay cut when they leave their regular jobs.
You have to apply to the lender for this benefit, which is intended to help you if your ability to pay is affected by military service. The law also gives you the right to terminate an apartment lease if you have orders for a permanent change of station or are deployed to a new location for 90 days or more. The Armed Forces Legal Assistance Office can help with these requests.
Members of the military have access to VA Loans, which let you get a house with no money down (and no private mortgage insurance). See the Department of Veterans Affairs website for more information. However, if you put little or no money down, you could end up being upside down on your home if prices drop and you have to move.
Tax-Free Housing Allowance
Another big perk for service members is the tax-free housing allowance, a monthly subsidy covering all or part of your monthly rent or mortgage payment as long as you’re in the military.
To see the value of the subsidy (which varies by your rank, where you live and whether you have dependents), check your Leave and Earnings Statement (your military pay stub) for your Basic Allowance for Housing and other special benefits, or look it up by rank and zip code at the Department of Defense’s BAH calculator.
Each branch of the military has an emergency-relief fund that offers small, interest-free loans for emergencies. Contact the community-service office at your base for details, or visit Army Emergency Relief, Navy-Marine Corps Relief Society, Air Force Aid Society or Coast Guard Mutual Assistance.
Credit unions on base also offer short-term loans at reasonable interest rates. Some even offer small emergency loans to members of the military with little or no credit check.