1. Consider a Roth IRA
First, setting up a Roth IRA is almost always solid financial advice, however, it's an especially good idea for military personnel who are receiving tax-free combat-zone pay since all contributions made to the IRA will be tax-free, as will certain withdrawals from the IRA. So long as the laws stay this way, setting up a Roth IRA is a great way for current military members to start saving for retirement. Best of all, setting up a Roth IRA offers you the freedom to invest in a vast array of securities.
2. Get Out of Debt
Next, get out of debt. Military service members have programs designed to help them eliminate debt, which is good seeing as the Financial Industry Regulatory Authority has found that those in the military, on average, incur more debt than civilians.
If you have debt that you are working to eliminate, start by checking out the Service Member’s Civil Relief Act. This Act places a cap on the interest rates for loans you took out prior to active service in the military. By using the benefits offered by this Act, you can quicken the rate at which you are able to eliminate debt, which is one of the first and most important steps in investing. Remember, you want compounding interest working for you, not against you.
3. Choose Where You Live Wisely
Third, be sure to choose your residence wisely. Active members of the military are allowed to maintain residence in whatever state they choose, regardless of where they are transferred or stationed. With this being the case, you will want to choose your residence wisely.
For example, if you are originally from a tax-free state such as Texas and are now stationed and living in a state where you are required to pay state income tax, it is highly advantageous for you to keep your legal residence in Texas. The less money you have to pay in taxes the more money you will have available to invest.
4. Thrift Savings Plan (TSP)
Fourth, don't rely too heavily on the thrift savings plan. One of the most popular investing options available for military members it the Thrift Savings Plan (TSP), and for good reason. The plan offers military members a number of benefits such as an incredibly low expense. Investors pay just $.28 for every $1,000 invested as well as a matching contribution from the government.
However, one major drawback of the TSP is that it forces you to invest in one of five index funds. This blanket approach to investing is not nearly as effective as a more tailored approach where you are able to pick and choose the securities you would like to invest in.
As such, it's a good idea to not rely too heavily on the TSP as part of your retirement savings plan. If you would like to put some money it to take advantage of the matching contribution and the low expenses, then it certainly isn't a bad idea - just make sure you are employing more tailored investment strategies as well.
As a military member, it is crucial that you take advantage of all the options you have available to you to save while you serve. By following the investment strategies for military members outlined above as well as investment tips that apply to a person regardless of their career, you can start building wealth and saving for retirement in the most effective way possible.
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