Serving in the military can be a rewarding experience and can bring a sense of pride in knowing 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 you start thinking about investing for the future now.
The following five investments could be beneficial for military families:
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 tax when you withdraw your funds. On the other hand, a Roth TSP will result in you paying taxes on contributions, but you will be able to withdraw tax-free.
Individual Retirement Account
You may want to choose to supplement your TSP with an Individual Retirement Account (IRA) in the case 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. Like TSPs, IRAs are retirement savings accounts, so withdrawals prior to age 59 1/2 may be subject to taxes and possible penalties.
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.
Investors should carefully consider the investment objectives, risks, charges, and expenses associated with 529 college savings plans before investing. More information about 529 college savings plans is available in the issuer’s official statement, and should be read carefully before investing.
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 also offering the potential for higher returns. However, you should be aware real estate tends to have higher risk compared to other types of asset classes, such as bonds or blue-chip stocks and may not be suitable for everyone.
Developing an investment strategy
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.
Call us today for a complimentary review of your current portfolio. We might be able to help make your money work harder for you.
Any opinions are those of the author and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. 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 a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.