Financial moves military families need to make in early 2021
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After a tumultuous 2020, now is the time for everyone to reassess their finances and make the most of their benefits for 2021. And military families have access to special financial benefits that are not available to civilians, including including low cost investments. , special tax breaks, military relief funds and low interest loans. Here’s how to make the most of these valuable benefits to get your finances back on track after a volatile year and help you build your savings for the future.
Make the most of the TSP match
Members can automatically save in the Thrift Savings Plan, an easy and inexpensive way to build tax-efficient savings for retirement. If you are in the mixed pension system, the Department of Defense will match your contributions to the savings plan up to 5% of your salary. It’s free money. Try to contribute at least enough to get the full game. “The BRS is a match per pay period, so you need to be careful not to cap early and in turn miss the match later in the year,” said Patrick Beagle, certified financial planner and helicopter pilot at the Marines retreat in Springfield, Virginia. You will not get the counterpart if you are not part of the blended pension plan, but you can still benefit from an automatic investment in this tax-efficient plan. You can contribute up to $ 19,500 to the TSP in 2021 (or $ 26,000 if you are 50 or older). If you are deployed to a combat zone and receive tax-free income, you can contribute up to $ 58,000 to a TSP in 2021. See TSP.gov for details.
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Consider Roth TSP dues
You can either make pre-tax contributions to the TSP, which reduces your taxable income now and grow taxes until retirement, or you can make Roth TSP contributions, which do not offer current tax relief but grow tax-free for retirement. Getting tax relief today might sound appealing, but you will likely be in a lower tax bracket while in the military than in the future, especially since a portion of your salary comes from ” a non-taxable housing allowance. . While most of your other retirement savings will be taxable upon withdrawal, Roth TSP contributions can diversify your retirement income, providing you with money you can draw on tax-free no matter what happens in the future. ‘to come up.
Review your investments
After a volatile year, now is a good time to make sure that your investments are still on your schedule and tolerance for risk. An easy way to do this is to use the TSP’s L fund, a target date (life cycle) fund. You choose fund L based on the year you plan to start withdrawing money (e.g. L 2050 for withdrawals from around 2050) and the fund primarily starts investing in equity funds long term, then gradually shift to plus- conservative funds as your withdrawal date approaches. “The lifecycle focus is based on the retirement date, not the retirement date,” Beagle said. Pick the L fund that is closest to the date you plan to stop working completely and start withdrawing the money, not when you plan to retire from the military.
Check your beneficiary designations
If you were young and single when you joined the military, you may have named your parents as beneficiaries of your life insurance and TSP. The money will go to your named beneficiaries, even if you are now married, no matter what your will says. Update beneficiary designations for your life insurance and retirement plans when you get married or divorced or have other significant changes in your life.
Prepare for financial emergencies
Even though the military tend to have more stable jobs than many civilians, they can still have financial emergencies, such as car or home repairs. Or your spouse may lose their job, which has happened to many families in the past year. Make building your emergency fund one of your top financial priorities. Set aside enough money in a safe and accessible account to cover at least three months of your essential expenses, Beagle said. Add more if you plan to leave the military soon. Keep this money in a money market account or savings account that you don’t use for your regular bills. If you have unforeseen expenses that you can’t cover on your own, see if you can get help from a military relief fund before you get into expensive debt. Each branch of the service has a military aid corporation that provides interest-free loans or grants for emergency expenses, such as car and house repairs, additional childcare expenses due to COVID-19 and disaster relief. To see the Air Force Aid Society, Army emergency relief, Coast Guard Mutual Assistance and the Navy-Marine Corps Relief Society.
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Consider refinancing your mortgage with special military rates
With interest rates so low today, many people can benefit from mortgage refinancing. You may be able to lower your interest rate and monthly payments, or you may be able to pay off your mortgage faster. Veterans and military personnel who currently have a VA loan have an additional option – a VA Interest Rate Reduction Refinance Loan (IRRRL). “VA IRRRL is a huge deal now,” Beagle said. To see the VA Fact Sheet for more information. Compare the rates, fees and closing costs of the VA IRRRL loan with traditional refinancing and calculate how long it would take for your savings to cover the costs and closing costs – refinancing may not be worth it if you are considering to sell your house in the next few days.
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