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4 Top Investments Military Families Should Always Consider

4 Top Investments Military Families Should Always Consider

Considering military service does not provide much spare time, it can be hard to discover and select the finest assets. The great news is that there are a variety of savings and investing options available to help you plan for a secure future without adding a lot of time or stress to your already hectic schedule. Below are some of the top investments to consider for military personnel.

Real Estate

Real estate can be a great strategy to diversify your portfolio and increase your earnings. The downside is that it entails more risk (and work) than low-risk investments. Real estate investments, on the other hand, have several advantages, including tax advantages and recurring passive income. Buying a house and turning it into a rental property is a frequent strategy to invest in real estate (some service members buy property near their bases to make managing the rentals easier).

Another prominent alternative is real estate investment trusts (REITs). A real estate investment trust (REIT) is a business that owns, manages or finances income-producing properties. Shares of publicly-traded REITs can be purchased using a taxable brokerage account or an IRA. REITs are required by law to payout 90% of their profits in dividends each year, which can result in substantial dividend yields for investors.

Thrift Savings Plan

The Thrift Savings Plan (TSP) is a retirement savings strategy that gives federal employees and service members a low-cost, tax-advantaged method to invest. You can invest in anything from a short-term US Treasury bond to index funds to a life-cycle fund, which automatically rebalances your holdings as you get closer to retirement.

You have two options for how your TSP donations are taxed:

  • Traditional TSP: With this pretax plan, individuals get a tax credit when they contribute during the year and pay taxes when they withdraw money in retirement.
  • Roth TSP: This after-tax plan doesn’t provide any immediate tax benefits, but eligible withdrawals are tax-free in retirement.

Check out TSP.gov’s contribution comparison tool if you’re not sure which choice is best for you.

You can contribute up to $19,500 to a TSP in 2021, or $26,000 if you’re 50 or older. You can receive up to 5% extra in matching contributions from the military if you’re a member of the Federal Employees Retirement System (FERS) or the Blended Retirement System (BRS). On the first 3% of your paycheck that you put to the TSP, you’ll get a dollar-for-dollar match, with 50 cents on the dollar for the next 2%. 5 The higher the match, the more you save, so try to max out your donations if at all possible.

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You may set up automatic installments that come directly out of your paycheck, just like a 401(k), making it simple to “set it and forget it.” It’s a good idea to set up automatic deposits before you receive your first check so you don’t lose track of your funds.

Savings Deposit Program

The US Department of Defense’s Savings Deposit Program (SDP) guarantees a 10% annual return on deposits of up to $10,000 to deployed military personnel serving in designated war zones. To be eligible, you must be earning Hostile Fire Pay and have been deployed for 30 days in a row or at least one day per month for three months in a row. Unless you request to withdraw your money sooner, you will continue to earn 10% interest when you redeploy home for another 90 days.

Although an additional $1,000 can be beneficial, bear in mind that SDP earnings are reported on a 1099-INT form the year you withdraw cash, which means you may owe taxes on the earnings.

Individual Retirement Accounts (IRAs)

Even if you’ve maxed out your TSP contributions, you can continue to save money in a personal retirement account (IRA). An IRA is a fantastic method to augment your TSP and assist in ensuring a safe retirement.

Traditional (pre-tax) and Roth (after-tax) IRAs are available, just as the TSP. Because of the large variety of investment options, IRAs offer more flexibility than TSPs. The contribution restrictions, on the other hand, are substantially smaller. You can put up to $6,000 in your IRAs in 2021 ($7,000 if you’re 50 or older).

Conclusion

Remember that there are many additional options for saving and investing, including U.S. Savings Bonds (Series I Savings Bonds pay 3.54 percent through October 2021) and Servicemembers’ Group Life Insurance.

Members of the military can also take advantage of programs that, while not investments, can help you save money. The VA Home Loan program, for example, provides mortgages with no down payment, low-interest rates, cheap closing costs, and no requirement for private mortgage insurance (PMI).

The Author

Oladotun Olayemi

Dotun is a financial enthusiast who specializes in first-in-class financial content, including crypto, blockchain, market, and business, to educate and inform readers.