Military Retirement Tips & Deployment Benefits

Updated February 2/15/2021

Benefits while deployed to a Federally Tax Exempt Combat Zone (CZTE)

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).

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..

Combat Pay Exclusion?

No Federal Taxes – This means more savings!  Think ROTH TSP or ROTH IRA contributions.

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 Service Members Civil Relief Act

Pre-service debt can be reduced to a maximum of interest rate of 6% while you’re deployed...

“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

Use the Roth TSP in a CZTE and ..."earn tax free growth on tax free income and never pay a dollar of taxes"

While deployed to a Tax exempt combat Zone, SM’s can contribute up to the 58K Annual Additional Contribution Limit rather than the annual (2021) 19,500 limit or the 25,500 limits including the catch-up amount for those over age 50.

If you can, contribute the 2021 annual maximum 19,500 to your Roth TSP – 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 of the balance to your Traditional TSP up to the 58K Annual Additional Contribution Limit in 2021.

Student Loans

* Due to COVID-19 and Certain Federally owned Student Loans may have payments suspended and for 0% interest until 9/30/2021. Check with your lender to see if this applies to you.

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.