Serving in the military can be a rewarding experience and can bring a sense of pride in knowing that you have done what you can to serve your country. Your service deserves to be commended! However, it would be a shame if after spending many years in the service you end up not being financially ready for retirement. Therefore, it is important that you start thinking about investing for the future now.
The following are five investment options to consider for a military family.
Federal Thrift Savings Plan
As federal employees, military service members can take advantage of the Federal Thrift Savings Plan (TSP). This type of retirement plan provides a tax-advantaged and low-cost way of investing for the future. The Traditional TSP enables you to contribute tax-free, but you will eventually have to pay income taxes when you withdraw your funds. On the other hand, a Roth TSP will result in you paying taxes on contributions, but you may be able to withdraw funds tax-free, provided certain conditions are met.
Individual Retirement Account
You may choose to supplement your TSP with an Individual Retirement Account (IRA) if you have reached the maximum allowed TSP contributions. Similar to TSPs, there are two types of IRAs: Traditional and Roth. Pre-tax advantages are included with a Traditional IRA while a Roth IRA comes with after-tax advantages.
529 College Savings Plan
If you are looking to save for your children’s higher education, you may want to consider a 529 college savings plan which provides you a tax-advantaged method of investing for the future of your children. Along with college and post-secondary school, funds in a 529 plan can be utilized to pay for K-12 expenses.
Although contributions to a 529 plan are not deductible from Federal income tax, many states allow you to deduct these contributions at the state level. Withdrawals do not incur tax liabilities if you use the funds for qualified education expenses.
Savings Deposit Program
Military service persons may have an opportunity to take advantage of the Savings Deposit Program (SDP) provided by the U.S. Department of Defense. The SDP enables qualified military personnel to contribute up to $10,000 per year to an investment account which guarantees a 10% return annually.
However, in order to qualify for the SDP account, you will need to meet certain requirements. First, you will need to be deployed in one of the designated combat zones to qualify for the program. You will also need to be a recipient of Hostile Fire Pay. Additionally, you must be deployed for 30 days consecutively or a minimum of one day per month for three months consecutively.
Many service members have been successful with investing through real estate. This asset class can provide diversity to your portfolio while potentially achieving higher returns. However, you should be aware that real estate tends to have higher risk compared to other types of asset classes, such as bonds or blue-chip stocks.
Developing an investment strategy
In order to effectively manage your portfolio, you need to develop a comprehensive strategy that takes into consideration your tolerance for risk and your specific financial goals. This will require a calculated balance of various asset classes. Please give our team a call to discuss how we may be able to help you with this!
The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Rademacher Financial, Inc. and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free.
As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover education costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state.
Real estate investments can be subject to different and greater risks than more diversified investments. Declines in the value of real estate, economic conditions, property taxes, tax laws and interest rates all present potential risks to real estate investments.