Use these tips to maximize your savings opportunities while deployed to a Federally Tax Exempt Combat Zone (CZTE). Paying less interest, less taxes, and utilizing the power of compounding – means more money you can save for an emergency fund, to pay down debt and build wealth for retirement.

Many times during your Military Career in the National Guard you may go on Active duty orders (ADOS), maybe on the Border Mission (OGS) or deployed to a Federally Tax Exempt Combat Zone (CZTE).

Combat Pay Tax Exclusion

This is an opportunity for tax-free income to grow federally tax free. The amount of the exclusion from tax is unlimited for enlisted service members (SM’s), and for officers the exclusion limited to the maximum amount of enlisted pay.

Re-enlistment bonuses earned by a military service member during the same month as when serving in a designated combat zone is also exempt from Federal Taxes.

Some states also apply the federal combat pay tax exclusion to state income taxes. Military pay is state Tax Exempt in AZ.  See this IRS link for more information

SCRA – The Servicemembers Civil Relief Act 

“Pre-service” debt (debt incurred before entering the military) can be reduced to a maximum of interest rate of 6% while you’re deployed. The lower interest rate can be requested up to 180 days after leaving military service, and the lower interest rate will be applied retroactively for the entire period of your active-duty military service. This includes mortgages, credit card debt, and even Student Loans. So call your loan servicers – proof of orders may be required.

TSP (Thrift Savings Plan) retirement savings

While deployed to a Tax exempt combat Zone, SM’s can contribute up to the 56K Annual Additional Contribution Limit rather than the 19K limit or the 25K catch-up amount for those over age 50.

If you can, contribute the maximum 19K to your Roth TSP (25K if over age 50) – This way you earn tax free growth on tax free income and never pay a dollar of taxes if you follow the IRS withdrawal rules on this money.  If you’ve maxed out your Roth, you can still make “Tax-free” contributions to your Traditional TSP up to the 56K Annual Additional Contribution Limit.

Student loans

O% interest – Federal student Direct Loans made on or after October 1, 2008, qualify for a 0% interest rate, up to 60 months while deployed in a hostile fire area, and this benefit can be applied retroactively.

Repayments – A SM can exclude part of the repayments associated with the months a SM was present in a combat zone. For example, if 1 year is required to earn the repayment of student loans and a SM served 6 of those months in a combat zone, the SM can exclude half of the repayment income.

Perkins Loans Forgiveness -SM’s with a Federal Perkins Loan, who serve in an area of hostilities for more than 12 months consequently, may be eligible to have their loan balance reduced for each qualifying year of service.

Click here for more information from the Consumer Benefits Protection Bureau on these benefits

Savings Deposit program (SDP) – 10% risk free!

10% annually guaranteed – risk free interest rate for up to $10K of base pay for each deployment to CZTE for more than 30 days. Money continues to grow for 90 days after you return home to your Permanent duty station. See link for more information.

Tax Debt forgiveness

If a SM is killed in action, while deployed in a combat zone, or dies later from injuries sustained while in a combat zone, the SM’s surviving family can make a special request to the IRS for forgiveness of his outstanding federal income tax debt. This tax relief also can apply to obtaining a refund for the surviving family if the SM has already paid his/her taxes. See link for more information.

For more about Michelle, visit https://beingmindfulindivorce.com

This content was developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice, and may not be used for the purpose of avoiding any federal tax penalties. Always consult legal or tax professionals for specific information regarding your individual situation/circumstances. Additionally, the opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security or service. 

 

#Military #Tax #retirement #retirementplanning #benefits #TSP #SCRA #studentloans #debtforegiveness #Combatpay

 

A trained Financial Professional in Divorce Planning and a background in taxes can help with these tasks.

As part of Michelle’s commitment to families, she is a leader for “What Everyone Should know About Divorce” in N. Phoenix/N. Scottsdale and also supports the West Valley. www.secondsaturdaynphoenix.com