Military Saves – and Kids Do, Too
Military families have a lot of financial options available to them. But did you know some extend to kids too? Military Saves is a part of the non-profit America Saves and partner in the Department of Defense’s Financial Readiness Campaign. A prong of that campaign is Military Youth Saves, which is a social marketing program designed to encourage kids to create good saving habits that will carry through to their adult financial lives. Military Youth Saves also serves as a one-stop shop for financial information for across all branches of the military, specific to military families and their children. They can be found online here. They’re also participating in Military Saves Week, which runs from Feb. 24 through March 1, and children and teens are considered an integral part of the program. Your teen – and you! – can sign up here for updates on what will happen during Military Saves Week. You can also download materials, like posters, here. Many financial institutions participating in the week will also be offering incentives for things like opening up savings and IRA accounts. You can also get updates and information by following Military Saves on Twitter at www.twitter.com/militarysaves. (And while you’re at it, you can follow us on twitter too:...
read moreMilitary Banking and Credit Union
If you or your child is active or retired military – you, and they, have a lot more banking options available to you both. These organizations have credit specific products made for children and young adults – in the military or not. Here are three options: USAA USAA is a financial services group open to activity duty military and veterans, their children and their grandchildren (providing the parent or grandparent is or was a member). They offer the gamut of services most banks and credit unions consider staples, such as mortgages, car loans, checking and savings accounts. They also sell insurance. For young adults who are just beginning their financial lives, USAA has products for younger children, too, including Youth Savings and Youth Spending accounts that have no monthly fee. You can find details on USAA services like mortgages, car loans and other financial services. Armed Forces Bank While the Armed Forces Bank doesn’t have products made specifically for kids, they do have a product called the Recruit Checking Account, which comes with a checking account that does not have a minimum balance requirement, debit card, free online banking, free online bill pay, and free e-statements and e-alerts. They also offer business banking, IRAs, money market accounts, mortgages and loans. Their branches are associated with military bases in Alabama, Arizona, California, Colorado, Florida, Georgia, Illinois, Kansas, Kentucky, Missouri, Nevada, New Jersey, North Dakota, Texas, Texas, Virginia, Washington and Wyoming – some branches are on base, and some are within local Wal-Marts. Find a complete list of Armed Forces Bank branches here. Navy Federal Credit Union The name of this credit union might say “Navy,” but membership is open to all active and retired military plus family members. You must be 18 to join, but parents can open a Visa Buxx card, which is a pre-paid debit card, for their kids through the credit union. For children in college, the Navy Federal Credit Union offer Campus Checking, which has no monthly service fee and ATM fee rebates. They also have the nRewards secured credit card if your child would like to start building credit safely. If you’re still in the planning stages, they also have a channel for college planning, including information on scholarships and 529 plans. You can find out more about the Navy Federal Credit...
read moreHome Buying
Home-Buying is More Complex for Military Families Many families’ largest investment is their home. And homeownership comes with an extra portion of complexity for military families. Many were hit particularly hard by the housing downturn, saddled with houses they simply couldn’t sell when ordered to move to a new location. But service members also have special mortgage programs and tax breaks to help them afford a home—and assistance if they’re unable to sell. Should You Rent or Buy? Members of the military receive a tax-free housing allowance to cover all or part of their monthly rent or mortgage payment. (To check on the Basic Allowance for Housing—BAH—by rank and zip code, use the BAH Calculator tool at the Department of Defense Web site. If you buy a home, you can deduct mortgage interest, even if you’re paying it with that tax-free money. But the rent-versus-buy decision is difficult when you may be stationed in an area only a few years. When home prices were rising quickly, many service members bought homes even if they expected to live in an area only for a year or two. They banked on selling for a profit (or renting the house for more than the monthly payments) when they were transferred. But the bursting of the housing bubble upended countless such plans. Service members who buy can benefit from VA loans. Interest rates tend to be comparable to other mortgages, but you can still buy a home with zero money down. For more information about VA loan eligibility and rules, visit the Department of Veterans Affairs Web site. If You Own, Should You Rent or Sell? Many military families wind up as accidental landlords, renting homes they can’t sell after receiving transfer orders. If you find yourself in that situation, set aside an emergency fund to help cover your mortgage and other expenses if you go without a renter for a few months. The law that helps members of the military get out of leases when orders demand that they move or deploy can be a double-edged sword if you’re renting to fellow service members. Keep at least three months’ worth of mortgage payments and other expenses in an emergency fund in case a tenant leaves unexpectedly. If you eventually sell your home for a profit after renting it, there are special tax rules that can minimize the bite. Civilian homeowners need to live in a house for two of the five years leading up to the sale in order to claim tax-free profit on the deal (up to $250,000 for singles or $500,000 of tax-free profit if you’re married filing a joint return). But military families need to live in the house for just two of the preceding ten years in order to qualify for the tax break. For more information on this and other tax rules for members of the military, see IRS Publication 3, Armed Forces Tax Guide, at www.irs.gov. Learn More Advice in this article came from experts at Kiplinger’s. Learn more at:...
read moreRetiring
Prepare for a Bigger Tax Bite If your state of legal residence while in the military has no income tax, moving as a civilian to one that does could be quite a financial shock. And no matter where you live, you’ll lose your tax-free housing allowance. Keep the new reality of your finances in mind when negotiating the salary for a new job, for example, or deciding how much you can afford for a house. Replace Your Life Insurance Members of the military have access to inexpensive life insurance. Servicemembers’ Group Life Insurance (SGLI) costs just $312 per year for the maximum $400,000 death benefit. But that coverage expires 120 days after you leave the military. During the transition, you can convert your policy to Veterans’ Group Life Insurance with no medical examination. That can be a good deal if you have a medical condition that might make it tough to qualify for life insurance in the open market. But VGLI is a lot more expensive, and the price rises with age. For those age 30 to 34, $400,000 in coverage costs $480 per year; the price gradually rises every five years until age 75. If you’re healthy, you may find a much better deal on your own and be able to lock in a fixed rate for 20 or 30 years. Shop for coverage at least six months before you leave the military, so you have time to get VGLI coverage if you don’t find a better option. Get quotes for individual policies at www.accuquote.com or www.lifequotes.com. For more information about VGLI and SGLI, visit https://www.va.gov/life-insurance/options-eligibility/sgli/. Replace Your Health Insurance If you retire after 20 years in the military, you’ll qualify for health care in retirement, although you may still want to buy supplemental insurance. If you leave before putting in 20, health-insurance premiums can be surprisingly steep. Even if you get a job that provides insurance, you’ll probably have to pay at least part of the premium yourself, in addition to out-of-pocket expenses, such as deductibles and co-payments. If neither you nor your spouse has a new job with health insurance, you can sign up for the Continued Health Care Benefit Program for up to 18 months. (This is similar to the COBRA benefits available to civilians who leave jobs.) You have 60 days after you leave the military to enroll in the CHCBP, which costs $1,065 per quarter for individuals or $2,390 for three months for families. Even at those prices, this can be a good option if you have a medical condition that makes it difficult to qualify for coverage. Protect Your TSP You can maintain your retirement account even after you leave the military, which can be a good deal because expenses are so low. Or you can roll the balance into a new employer’s 401(k) or an IRA, to get access to different investments. If you roll TSP money into an IRA or another plan, keep track of any contributions that were made with tax-free combat pay. A portion of each withdrawal from the new plan will be tax-free to account for the tax-free contributions. Go to www.tsp.gov for details. Build Your Emergency Fund A stash of safe and accessible cash is even more important once you move into a civilian job that...
read moreDeployment
Be a Legal Eagle: You’ll want to make sure your family back home as the authority to make final decisions in your absence. It’s important to have your will and power-of-attorney in place so that you can rest assured that your family is prepared and protected. Make a Payment Plan: You will want to walk through the payments you and/or other family members make on a monthly basis and make sure there is a plan in place while you are deployed. Auto-payments through online banking can be extremely helpful in ensuring no payments are missed during your time away. Also, make sure that all information about accounts and payments is kept in a safe and easy-to-access place back home. Save, Save, Save: Look for opportunities to save while you’re away. If a car isn’t going to be used while you are deployed – suspend the insurance on that vehicle. If you have gym memberships or other monthly expenses that can be suspended or canceled in your absence, take care of those ahead of time so those expenses can turn into savings. Create a Cushion: It will help your peace of mind tremendously if there is a financial safety net for your family should unexpected expenses arise during your deployment. Many experts suggest you have a few months worth of expenses in savings in case of an emergency or unforeseen financial issues. Learn More: This content was developed using advice from the experts at Kiplinger. You can get more information on all these tips and explore a variety of savings opportunities at...
read moreSavings
Taking Charge of Your Savings Even though those who stay in the military for 20 years or more can qualify for a pension, it’s still important to save on your own. In truth, few people actually stay in the military long enough to claim a pension, and, unlike civilian pensions, there’s no “partial vesting” to guarantee that workers who leave “early” get something. With the military, if you leave before 20 years, you get nothing. Even if you qualify, pension payments probably won’t be enough to cover your bills. Instead of worrying about what might happen, take charge of something you can control: your own savings. Putting Savings on Autopilot: Thrift Savings Plan Men and women in the military can invest in this low-cost, tax-advantaged retirement-savings plan for federal employees, which is similar to a private company’s 401(k) plan. You can contribute up to $17,000 to the TSP in 2012, and even more if you receive tax-exempt pay while serving in a combat zone—up to a total of $50,000 in 2012. Because contributions from your regular pay escape taxes, they don’t lower your paycheck nearly as much as you might expect. And your contributions grow tax-deferred until you withdraw the money in retirement. You can keep money in the TSP after you leave the military, or you can roll it into an IRA or another employer’s 401(k), where it will continue to grow tax-deferred. If you take the money and spend it, you’ll face an immediate tax bill and, if you’re younger than 55 in the year you leave the military and tap the account, you’ll generally pay a 10% penalty, too. For more information about the rules, visit tsp.gov. You’ll also find a calculator there to help you project your future account balance and see the power of long-term compounding of earnings. Take Advantage of Tax-Free Earnings From a Roth IRA Unlike contributions to a traditional IRA, which can earn a tax deduction to lower today’s tax bill, contributions to a Roth IRA offer no instant gratification. But the delayed gratification of doing without today’s tax deduction is sweet: All withdrawals from a Roth in retirement will be tax-free, whereas withdrawals from a regular IRA are taxed in your top tax bracket. Another advantage of the Roth is that you can withdraw contributions at any time tax- and penalty-free if you get in a pinch. You can contribute up to $5,000 to a Roth IRA in 2012 (or $6,000 if you’re 50 or older) as long as your adjusted gross income is less than $110,000 in 2012 if single or $173,000 if married filing jointly. (The opportunity to make contributions gradually phases out as income rises above those levels.) You can contribute to a Roth IRA with a single payment or sign up to have money automatically shifted from your bank account or paycheck. Learn More Tips in this article are from the experts at Kiplinger’s. You can get more information on savings strategies for service members here:...
read moreCredit Cards
Paying on time and in the right amount protects your credit score. Good credit means paying less interest on car and house loans, and can even make you look better to perspective employers! The Servicemembers Civil Relief Act (SRCA) gives military personnel on active duty better interest rates and protections for their credit cards. However, you must apply for them in writing and with the proper documentation, such as copies of deployment orders. Some credit card companies even offer additional benefits, so make sure you ask. Interest rates are negotiable. If you have good credit (a FICO score above 700), you may be able to get your credit card company to lower your rate just by calling and asking. Paying off your balance in full every month saves you money. It basically means you got a short-term loan for free! Your credit card company may be willing to refund your money if you buy something that breaks or is defective. Check your card agreement for the kinds of insurance that may already be included. If you transfer a balance to a card with a lower rate, there is usually a transfer fee. Find out how much it is to make sure the transfer is really saving you money. Rewards come at a cost. Cards that offer everything from airline miles to cash back rewards usually charge a higher interest rate and/or annual fee. Read the terms carefully to know what you’re getting! The credit bureaus are mostly looking for how much of your available credit you’re using. Add up the credit limits on all your cards, and then add up all your balances. If your balance is 30% or less, you’re in good shape as far as they’re concerned. Applying for too many cards at once can hurt your credit. But so can closing too many, or lowering your credit limits (see #8). If you’re trying to repair your credit, there are better ways to go about it. Credit cards aren’t inherently good or bad. They’re a tool, and like most tools they can be helpful or hurtful, depending on how you use them. ...
read moreBudgeting
Think About Where You’re Going Are you working to get out of debt? Saving for retirement? Supporting your close or extended family? Looking to buy your first home? Thinking about starting a business? Or maybe you’re striving for one or more of those goals? Keep what’s most important to you in mind as you develop your budget. You’ll be more likely to stick to a budget if it reflects your personal priorities. Track Where You’ve Been Once you’ve set a budget, it’s important to track your spending against it. That way, when you stay under or go over, you will know how and why it happened. Keeping a budget and tracking spending against it reduces anxiety and uncertainty that can sometimes lead people to make bad financial decisions. Know Your Limits Integrity means being honest with yourself and other people. When you draw up your budget, be honest about what makes you happy. Also factor in what makes your family happy. You may need to make some tough decisions, but cutting everything out can also have a negative effect. Total Your Earnings Add up all your household income for a given month. Make sure you include any money from sources besides your regular paycheck. This could be rental income, child or spousal support, or a seasonal job. Assess Your Monthly Expenses Add up everything you spend, and that means everything. The cash you take out of the ATM and the stuff you buy online, as well as the rent and electric bill. You can use a worksheet <link to worksheet in resources>, budgeting software, or paper and a calculator. Don’t forget annual or semi-annual costs, like school fees, or house and car insurance. Subtract Expenses from Earnings The first concern is whether your expenses are less than your income. If they’re not, you’ll need to seriously retool your budget. However, even if you have money leftover every month, you should examine where it’s going and in what proportions, to make sure you’re building the kind of future you want. Rethink Your Budget This is when you make adjustments. Maybe you have too much money tied up in basic expenses, and not enough for savings and fun. Or maybe the opposite is true. Make sure you build in money to pay down any debt that you may have. Also, include savings, first for an emergency fund (8 months’ worth of expenses) and then for other goals like a down payment on a house or...
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