Cyber criminals have many motives and goals, but separating you from your hard earned cash is one of the most lucrative for the criminals and potentially devastating for you.  I've put  a checklist on my website at https://www.moneypilotadvisor.com you can download for free with more details and tips.

Do you use the same password to log into multiple websites? Or use common phrases or personal information in your passwords?  If someone gets your login for one account they may be able to log into other important accounts, like your bank account or investment accounts. I know it’s a pain to have all those t passwords with random letters, numbers, symbols. Try using a password manager that can generate and save unique passwords for you. If your device has biometric authentication, use it to unlock our devices and to access stored passwords. And whenever possible used two factor identification. That's when the company you're trying to login to sends you a text or an email to verify it's actually you logging in. 

Do you sharealot of personal information on social media sites? Some cyber criminals look on these sites for key information like your birth date, place of birth, or mothers maiden name which can aid them in resetting passwords associated with your financial accounts giving them access and locking you out. Consider making your social media account private where possible or hiding sensitive personal information. 

Are images in emails you receive set by default to download to your computer automatically? This is one way cyber criminals lure you into clicking links or opening attachments which are then redirected to a compromised website. When you receive an unsolicited email don't open any attachments until you can confirm who the sender really is. 

Research the apps before you install them on your phone.  And give them the minimal permission necessary to use your data. Cyber criminals can build legitimate looking apps that can steal your data and monitor your phones actions. 

Always remember if someone calls claiming to be from a government agency either offering you relief payments or demanding payments for fines or taxes, this is a scam. The IRS for example will never call or email you. Any official communication they will send you through snail mail. The same goes for someone claiming you won sweepstakes. Or someone calling from the “credit card department” asking you for your credit card information .

A common thread is the thieves will contact you by email, phone, or text, pressure you with immediate deadlines or threats, and try to get you to send them money, gift cards, credit card information, or a check. Or work to get key personal information from you like account numbers, passwords, to steal your identity and rob you through impersonation. Hang up, don’t text back, and don’t open the email. Call the company or agency directly using a phone number you know is correct to see if they are legitimately trying to contact you.

If your data is stolen, consider freezing your credit immediately by contacting the three major major credit bureaus, Experian, Equifax, and Trans Union. Change your password on any sites that have the same credentials. Report fraud immediately to your financial institutions . If you lost money in a scam or victim of identity theft file a report with your local police and the Federal Trade Commission. Check you credit report details regularly. By law you can receive a free copy from each of the three credit agencies once a year at https://www.annualcreditreport.com/index.action  
Don’t wait to find out our a victim of fraud until you get denied for a mortgage, car loan, or line of credit, or worse flagged on your security clearance investigation. 

This week I'm speaking at Military Money Conference near Raleigh, NC. It's the biggest gathering of the military and money community ever. If you've ever thought about a career in the personal finance field, this conference is for you.  Attendees can expect inspiration and actionable advice and connecting within the personal finance community. Here's all the information  https://milmoneycon.com/register/ 

Today I'll talk about some of the different career options related to personal finance. First, personal financial planning and Certified Financial Planner (CFP) designation. https://www.cfp.net/why-cfp-certification/why-get-certified CFP’s meet with clients to explore what’s important to them and create holistic financial plans to meet their unique financial dreams and challenges. CFPs provide advice in a wide range of specialties, like budgeting, planning for transitions, paying for college and retirement, managing risk, taxes, investing, and what ifs like disability or premature death. If you enjoy helping people in a very comprehensive way, this path may be for you. Learn more at The Military Financial Advisors Association (MFAA) which is a nonprofit of independent financial planning experts that specialize in military and veteran families. And we're on a mission to help service members, spouses, and veterans get started in the profession. Check out and the Military to Financial Planner podcast

Learn more at the Financial Planning Association (FPA). If you’d like real taste sign up for the FPA Externship https://fpaexternship.org which this year June - July. You get to peek behind the curtain and see over 25 firms and experts at work, and do the work yourself. No experience necessary and all are welcome. It’s totally virtual and if you miss a session live, it’s recorded. If you are interested in helping people in their financial lives but don’t know what that even looks like this will be the best $250 you’ve ever spent.

 If you like educating and counseling check out the Association for Financial Counseling & Planning Education® (AFCPE®) It believes in empowering all people to achieve lasting financial well-being through the highest standards of financial counseling, coaching, and education. Their Accredited Financial Counselor (AFC) designation delves into financial issues relevant for lower and middle-class Americans, like managing credit cards and debt, budgeting, and managing cash flows. For  military spouses, this can be a great way to enter the personal finance field,  find volunteer and PAID opportunities. AFCPE also offers special pricing for military spouses.

Like people, but love numbers and rules? You might excel as a tax preparer and become an Enrolled Agent (EA). An enrolled agent is a person who can represent taxpayers before the IRS after passing a test covering individual and business tax returns. You could start your own tax return preparation service or work for another preparer. There's volunteer work like the IRS Volunteer Income Tax Assistant (VITA) Program provides free income tax preparation for servicemembers and lower income Americans. There's paid work with commercial tax preparation companies like H&R Block which also provide entry level training, often for free.

 If you have questions and would like to know more, don’t hesitate to reach out. This field is really breaking open opportunities for new faces in different places. Come join the party.

You may have heard that the Thrift Savings Plan (TSP) may finally be joining us in the 2st century. There are some good and important changes coming, and there's going to be a transition period when you won’t be able to access to your TSP.

According to TSP, it is launching its official mobile app that will give you access to your TSP My Account. You'll be able to log onto your account using biometric identification software on your mobile device, like fingerprint access and facial recognition which will add an extra level of security. They are also promising virtual assistance  via the mobile app or the web. There will be an interactive virtual assistant and automated support 24 hours a day. The virtual assistant can transfer you to an in-person representative during business hours, if needed. TSP is also promising an online chat function to connect you directly to a real representative for personalized support during business hours.

New streamlined paperwork processing is also coming, promising the ability to complete many transactions online with an "Easy, secure, and legally binding e-signature.”  In particular, they're promising assistance and a streamlined processing for rollovers from other 401(k)s or IRAs into TSP. And you should be able to make electronic transfers for loan payments and payoffs, and disbursements from your account.

Here's the key dates they need to know:

April 8 – Last day to request paper loan documents by telephone

• April 21 – Last day to submit paper loan documents
• April 29 – Last day to request all other paper forms, whether by phone or online.
• Mayy 16 – Last day to submit or access all forms (online or hard copy). This includes withdrawal, rollover or transfer requests as well as beneficiary changes..
• So basically if you want to make any request that needs a form you must submit it by May 16. 
• May 16 is also the last day to contact TSP via email
• May 26 – Last day to make transfers between different mixes of investments  or change contributions. So if you want to rebalance, do it before May 26th. 
• May 26th is also the last day you can contact TSP via telephone.
• From May 26 at noon Eastern time through the first week of June, account access of any kind will NOT be available. All your investments in TSP will still be there, your automatic payroll contributions will continue, and invested funds will continue to reflect market changes. 

Think of this May 26th through the first week of June as a total eclipse of the TSP. Seeing the world go dark in a total eclipse of the sun can be scary. But have faith the sun is still there and will come out again from behind the moon. In the same way TSP will “go dark” from May 26 through the first week of June. But what comes out on the other side should be a much improved, more participant-friendly TSP.

Now after the upgrade, all TSP users will have to update your login information before accessing your online account for the first time. TSP is promising step-by-step prompts to walk you through it. You’ll verify your identity, update your contact information and set up your account security.

Coming later this year, but not with this upgrade TSP plans to add a window within TSP where you could purchase outside mutual funds through the TSP website. I'm keeping an eye on this as well and will certainly do a podcast on that as details become available.

For more information watch your emails or go to tsp.gov and click on the banner right at the top of the page New features and other changes coming to TSP later this year.”  Can I put a link to that in the show notes

https://www.tsp.gov/new-tsp-features/key-transition-dates/

There are two types of 529 plans: prepaid tuition plans and education savings plans. Today I'm only focusing on the 529 Education Savings Plan which is an investment account you use to save for future education tuition and expenses. The plans are set up by each state. You to invest your savings in the plan, where your investment grows tax-free. And when you withdraw the money for approved education expenses, that distribution is also tax-free. 

You can use it to pay for higher education tuition, mandatory expenses, room and board at any college or university, and some vocational schools. Now 529 accounts can also be used for up to $10,000 a year of K-12 school tuition only.

If you pay state income tax, you may get a break for your 520 contributions, including deductions on your state income tax or getting matching grants. You'll only be eligible for these state specific benefits if you invest in a 529 plan sponsored by your state of residence. It’s important to note that you can participate in ANY state’s 529 plan. Look at the plan’s administrative fees and investment fees. If you don’t pay state income tax, like many active duty military, you may be best off going with a plan with lower fees, better customer service, and/or investment options that best fit your needs. Details are on each plan’s website. There are also websites you can use to compare different states plans. A great place to start is Morningstar’s 529 plan ratings. https://www.morningstar.com/articles/1006084/the-top-529-college-savings-plans-of-2020

Anyone can open a 529 account for a designated beneficiary, family, friends and even the designated beneficiary themself. Anyone can contribute to the 529 plan once it’s open. Many plans also make it simple for others to gift money to the 529 account, like providing a donation link unique.

You typically choose from a range of investment portfolio options that often include mutual funds or exchange traded fund. Many also include age-based portfolios, which automatically shift from more aggressive investments to more conservative  investments as a beneficiary gets closer to college age. Give these  a look if you’d like to fire and forget.

529 accounts owned by a parent or dependent student are count as parental assets toward your expected family contribution. Higher expected family contribution can mean lower financial aid. Parental assets are counted to a max of 5.64% which is more favorable than student assets which are counted at 20%. So accounts owned by parents or the student may decrease financial aid. But not as much as if the student had the savings outside of a 529 account.

Assets held in 529 plans owned by grandparents or anyone else have no affect on the FAFSA. But when funds are distributed to pay for college expenses, it will be counted as student income on the FAFSA. One strategy to avoid this problem is  wait to withdraw funds until after the student’s third semester of college, since the FAFSA looks at income from two years prior. 

The owner that opened the account can change the beneficiary at anytime. There is a long list of people you can make a new beneficiary, including nearly any relative of the beneficiary. And you can change the beneficiary more than once. Check with your plan to see who qualifies. 

If you withdraw money from a 529 plan that is not used for qualified education expenses it may be subject to both state and federal income tax and an additional 10% early distribution penalty. There are a few exceptions to the penalty if the beneficiary dies or becomes disabled. 

 One last note for parents. Remember, you can borrow money for college, but you can’t borrow for retirement.  At a bare minimum invest enough in your TSP or 401k to get any match. 

Most of you already know that digital assets like Bitcoin, Etherium, and Nonfungible Tokens (NFT) experience huge price swings or volatility. Today's focus is diversification of your portfolio and digital assets. When you choose from among different investment options, you diversify. You likely already started do this by investing in mutual funds or exchange traded funds through a workplace retirement plan like the Thrift Savings Plan or a 401k. If you  have a portfolio of stock and maybe bond funds, what happens  if you add in VERY volatile digital assets in the hopes of earning a bigger return (profit)? Will  those stormy seas will turn into a tsunami of risky volatility?

Not necessarily. That’s due to correlation, the tendency of different investments to swing up and down together.  Two investments with a correlation of 1, are perfectly correlated, they go up and down together. If the value of investment A goes up, investment B also always goes up. If the value of investment B goes down, investment A goes down too.  This could be the stormy seas turned tsunami scenario. If you need that invested money for something else, you’re going to take a loss. 

If two investments have a correlation of -1, they are perfectly negatively correlated, when one investment goes up the other always goes down. And vice versa. But just like unicorns, perfect negative correlation pretty much never occurs. it they have a correlation of 0, there is no correlation. If A goes up,  B has an equal chance of going up, going down, or not changing at all. 

The volatility, or price swings of digital assets is VERY high.  Fortunately digital assets are NOT perfectly correlated to stocks, or any other assets. In plain English, most of the time digital assets values do their own thing and fluctuate in ways that do not match stocks or bonds.

Although Bitcoin is almost a decade old and many investors have jumped on the digital asset band wagon, the digital asset market is still more like the wild west than traditional investments. In addition to wild price swings, regulations and insurance programs that help protect investors of traditional assets haven’t developed yet for digital assets. Fees associate with buying, trading, and holding digital assets can be high and are often buried in fine print. If you do invest in digital assets, you literally need to be prepared for the possibility you could lose your entire investment.  

Because digital asset prices are not strongly correlated to other assets like stocks and bonds they could be beneficial to broader portfolio. But be careful. Adding too much digital assets to a portfolio can have the affect of the tail wagging the dog. How much? Depending on your tolerance for risk probably just 1% to 5% of your overall portfolio. Yes, that small an amount could make a meaningful difference in your portfolio’s return, while managing the risk of price volatility and the very real uncertainty of the new investment type over all. 

Always keep very detailed trading records. You are responsible for reporting and paying taxes on your profits and losses. If you’re a HODLer that buys and never sells, you won’t owe taxes until you eventually do trade or sell your assets. If you are an active trader, be very careful. You can wrack up a huge tax bill before you realize it if your unfamiliar with the tax laws, especially around short term capital gains, short term capital losses, and the wash rule. One way to minimize these problems is not to sell an asset within one year of buying it. If you plan to trade more often, seriously get some tax help.

For more information on investing, check out Ep 63 Crypto Currency, Ep 57 Risk Profile, Ep 52 Stocks, Ep 45 Rebalance, and Ep 44 Capital Gains.

I've put a small, tax season gift for you on my website moneypilotadvisor.com. You can go there and download a free checklist “What Should I Consider When Reviewing My 2021 tax return”. This information also should help you prepare your return. 

If you take the standard deduction and made cash contributions to qualifying charities you can deduct up to $300 if you single or $600 for married filing jointly. A deduction reduces the amount of income we have to pay tax on. Be sure to have your donation receipts.

If you recently married or divorced, review your filing status which is determined by your situation on December 31, 2021. If you married any time last year, you'd be considered married for the entire year. The same as true if you had a child born in 2021. You would qualify for the child tax credit for the entire year. 

If have dependent children under age 18 you may qualify for the child tax credit. In 2021, half this tax credit should have been paid to you directly in monthly payments beginning in July. As long as you still qualify, you’re eligible to get the rest of the credit when you file your tax return. But you need to report the total amount you have already received  You can find this information in a letter the IRS sent to you, or from you online IRS account, or even reviewing you own bank records.

If you paid child care expenses for a dependent child under 13 so you and your spouse (if you're married) could work or pursue work, you can also qualify for the Child and Dependent Care tax credit. If you have dependent children or your spouse in college you may qualify for the Lifetime Learning Credit or the American Opportunity Tax credit. There are quite a few rules associated with all these tax credits. So be prepared to answer questions about your family situation in detail  and bring receipts when you talk with your tax preparer or use tax preparation software to do it yourself.  

Did you receive the third COVID  Economic Impact Payment (EIP3)  in spring 2021? It was  $1,400 single, $2,800 for a married couple, PLUS $1,400 per dependent child or qualifying dependent relative. There was a phase out over certain income. If you enter the wrong amount you received on your tax return, it will go through a manual review at the IRS  delay any refund for months. The IRS is supposed to mail out reminders this month or in March of the amount of EIP3. If you don’t have the IRS letter, go back and look over your bank statements from spring 2021 to find it. 

If you find you owe more tax or get a higher refund this year than you expected consider changing your W-4 withholding through HR or military MyPay to adjust it.

Watch out for 1099 forms you should receive which report your investment capital gains, dividends, interest, and other income. You may need to log into your accounts and download them yourself. The key is to make sure you’ve rounded them all up and have them on hand.

One thing catching people off guard is reporting their income, gains and losses from trading, staking, interest, or rewards in crypto or digital assets. These are treated like other investments for taxation. It is critical to detailed records of all your transactions, even if you use a broker like Coinbase or Venmo. The 1099s they issue may have partial or inaccurate information.  If you’ve been an active trader, I highly recommend you use a CPA knowledgable in crypto to help you with your taxes and make sure your record keeping is up to snuff. 

Hello and welcome back to the podcast. I was listening to something this week about Maslow's hierarchy of needs. You may remember this from school or reading. It’s basically a pyramid where one need has to be met before you are motivated and are able to address the next level up the pyramid. The most basic needs, at the bottom of the pyramid are physical like shelter and food. Then the next higher is safety and security. Above that is love and belonging, then the next up is esteem and respect. Then at the very top of the pyramid is self-actualization the need to realize your potential and grow. The basic idea was that if you haven't the needs at the bottom of the pyramid you don’t have the capacity to address the needs higher up.

I was interested to hear recently that Maslow didn't actually come up with the pyramid, but that it  was an idea was based on his writings. And since then still also reimagined this idea of a pyramid. And one that I liked and thought was especially fitting for financial planning is envisioning these needs as a sailboat rather than a pyramid.

In the sailboat version, life as a voyage on a vast ocean full of opportunities for meaning and discovery, but also danger and uncertainty. In order to stay afloat and keep from drowning you need a boat. A boat without a sail will keep you out of the water but you’re not going anywhere. You’re just bobbing along where the ocean takes you. The hull of the boat represents safety and security. The sail represents growth with the needs of exploration, love, and purpose. Exploration is the desire to seek out and make sense of new, challenging, and unpredictable events despite the pressure that comes with it. Love basically means the desire to feel connected and love with others. Purpose represents the continual pursuit of goals.

I really love about this idea of the sailboat with the hull providing all the safety, security and basic needs and the sail providing the things that really bring personal meaning to our lives. You can survive working and saving solely to build the boat’s hull. Yes the security the boat’s hull provides is critical. It doesn’t matter much much how you feel about love, exploring, and purpose if you boat is sinking and your surrounded by sharks. On the other hand, spending all your energy only focusing on that physical security, safe but adrift at sea isn’t much of a life either.

That’s why I love approaching financial planning as a sail boat. Absolutely, we need to make sure your money keeps you and your family alive, safe, and cared for at every stage of life. That’s essentially a life raft. But how much better is it to plan and build a sail boat? Where do you want your sail to take you? Your exploration, love, and purpose should guide your journey and be the blue print for the ship you build. That’s the part of financial planning I love. Listening and teasing out what kind of life journey you want. What are your needs for exploration, love, and purpose in your life? We’ll definitely make sure you have a safe and secure boat. But let’s get past just the lifeboat and help you use what you have to build the sailboat and navigate the life you want.

I hope todays’s podcast has helped you look past just the dollars and spreadsheets of building your best life you. And helped you think about your sailboat and the journey you want it to take you on.

I’ve had clients close to retirement to asking, “Should I pay off my mortgage before I retire?”  The bottom line up front is that in the long run, dollar for dollar its very likely you would much better keeping a low interest mortgage and investing that cash in a moderate risk portfolio. But YOUR decision to keep or pay off your mortgage depends on a lot more than just a spreadsheet. 

First do you have the cash available to pay off your mortgage or  some extra income now that you can use to make extra payments and pay it off sooner? Why are you considering paying it off early?  Will it help you sleep at night? Honestly, if having a mortgage payment in retirement will have you living in fear of losing your home, it doesn’t really matter what the numbers say or what opportunities you leave on the table.

Other benefits of paying it off are you won’t have to pay  interest on a loan you don’t have. No mortgage can improve your cash flow with lower fixed costs each month. This can be a big help if your circumstances change. 

And keeping your mortgage? First, you’ll need to have income coming in to make a mortgage payment along with your other expenses. If you can, you may end up much better off if you don’t pay that mortgage off now. And instead invest that money, and enjoy years of compounding growth. Especially if you financed or can refinance at these historically low home mortgage interest rates.

Let's say you have a mortgage with a 3% interest rate,  balance right now of $200,000, and 15 years of payments left. Or refinance to a 15 year mortgage at 3%.  Over 15 years, you would pay just over $48,000 in interest. Pay off now and you save $48,000. 

Now  instead of pay off the mortgage, you invest that $200,000  in a fairly conservative, diversified investment portfolio of half stocks and half bonds. Historically, this will earn you a return of at least 6%. That $200,000 invested for 15 years with a 6% annual return will grow to just over $490,000. That’s a profit of $290,000. Now you still had to pay $48,000 of mortgage interest. Which still leaves you more than $250,000 better off by keeping your mortgage and investing!

I mentioned your decision is about more than just a spreadsheet. Paying off your mortgage is a sure thing. That $200,00 disappears form you bank account and you own your home free and clear, period. If you keep your mortgage, with a fixed interest rate that interest cost is a sure thing. BUT, that investment return is not guaranteed. 

For keeping your mortgage to be a better option for you, your overall return on your investments needs to be higher than your mortgage interest rate over the life of your loan. Even with conservative investment portfolio there is a very good chance that keeping your mortgage with a low interest rate is better choice, but there is no guarantee. Again, this is where having a reliable cash flow in retirement and emergency fund are key.

In the end it comes down to what options are available to you and how you tolerate uncertainty.  Let’s do a quick review. If you are comfortable with some uncertainty, you will have reliable income to pay your expenses in retirement, including a mortgage payment, and you can lock in a mortgage interest rate that is lower than the profit you can expect from investing, keeping that mortgage could be a very good choice for you and leave you with a higher net worth.

If you don’t think you’ll have the income to cover all your retirement expenses and a mortgage, or you won’t sleep at night with a mortgage payment having over you head, no matter what the numbers say, your best choice will probably be to go with the sure thing and pay it off. 

And if you still have a mortgage over 3% your window for getting a lower rate is is probably closing. For more info on the refinance decision go back to Episode 18. 

When you separate from military or federal employee service without a retirement or a family member leaves a current job, you lose your healthcare associated that employment. 

For active duty military and reservists covered under Tricare if you separate without a retirement you qualify for the Continued Health Care Benefit Program (CHCBP). The deductibles and cost shares are relatively low, but premium for individual coverage about $6,000 a year. For a family it’s a little over $16,000 a year. https://www.humanamilitary.com/beneficiary/benefit-guidance/special-programs/chcbp/

If you are a separating federal civilian employee, you can qualify for Temporary Continuation Coverage (TCC) which is a continuation of your existing FEHB policy. But you must pay the full premium for the plan you select, both your and the government's shares of the premium. So you can expect TCC to be about 4x as expensive . https://www.opm.gov/healthcare-insurance/healthcare/temporary-continuation-of-coverage/#url=separate 

COBRA coverage is available for regular civilian employees of companies with 20 or more employees. COBRA is a federal law that gives you the right to keep their employer’s group health plan after a job loss. You will have to pay the full health insurance premium, including the employer portion. Check with HR for details.
F
or all three of the current employer continuation plans temporary the service member or employee can get 18 months of coverage, eligible family members 36 months.

There are other options on the Health Care Exchange at https://www.healthcare.gov/  You'll see plans, costs, and possible premium tax credits that can greatly reduce your overall costs,  Click the search box at the top of the website and enter Preview Plans. You’ll need to enter some basic info like your state and anticipated income for the year you want coverage for details. Your costs will depend on your income relative to the federal poverty level. If you qualify for the premium tax credit subsidies. You can have this credit applied to reduce your monthly healthcare.gov insurance premiums. Or you can wait to you file your tax return at the end of the year and apply it to the federal income tax you owe for the year. 

If your income is below 138% of the federal poverty level, you may be eligible for Medicaid and /or Children’s Health Insurance Program (CHIP).  But these are state based, whichcan be challenging if don’t know where you will be settling. If you qualify for Medicaid, but choose to buy health insurance on the exchange anyway, you are NOT eligible for for a premium tax credit.

For 2022,  if you earn more than 400% of the poverty level the premium tax credit begins to phase out. In 2023 it will revert to being a cliff. One dollar past 400% and you get no subsidy.

You  need to enroll in a particular Silver plan or better to receive the premium tax credit. Your costs  are based on your expected household income for the year you want coverage.  If your income doesn't match your estimate for the year it will be reconciled when you file your federal income taxes. For your household size count yourself, your spouse if you're married, plus everyone you'll claim as a tax dependent, including those who don’t need coverage.

You can also shop around with different health insurance companies or brokers. If you will earn too much for an exchange premium credit, you may find a cheaper alternative directly from an insurance company.

Today we’re talking about combat pay and the Thrift Savings Plan (TSP). I’ll be throwing around some tax terms terms, so let me take a minute to go over them.

Tax-exempt - You don’t pay any state or federal income taxes on tax-exempt pay, ever. This applies to all of the pay our enlisted and warrant officers earn in a combat zone. For commissioned officers combat pay is tax-exempt up to $107,868 for 2022, your pay above that is taxed as normal.

Pre-tax, also called tax-deferred - Contributions to Traditional TSP are pre-tax or tax deferred. Your TSP contribution is pulled from your pay first, then you pay income tax on what’s left. You DO you pay income taxes later on both contributions and on the amount your it grows when withdraw it from TSP. 

After-tax -  Contributions to ROTH TSP or a ROTH IRA are called post-tax, or after-tax contributions. You pay income tax on your pay first, then make contributions to ROTH accounts with what’s left. So you pay tax on all your taxable your income now. But,  when you withdraw it after after age 60, your initial contributions and all the growth comes out tax free. 

So let’s envision a chart about combat pay contributions to retirement accounts like Traditional TSP, ROTH TSP, and ROTH IRAs. Our chart has four columns. The 1st column lists the type of contribution, the 2nd column asks “Are my contributions taxed when earned?”, 3rd column  “Are contributions taxed when withdrawn?", and 4th “Is the growth taxed when withdrawn?” No-one loves to pay taxes, so we’re looking for no answers to these tax questions.

Non-combat pay, Traditional TSP contributions - No, Yes, Yes

Non-combat pay, ROTH TSP or IRA contributions - Yes, No, No

Tax-exempt Combat pay, Traditional TSP contributions - No, No, Yes

Tax-exempt Combat pay, ROTH TSP or IRA contributions - No, No,No, This is the Triple Crown of No Taxes.

Military members deployed to a combat zone can contribute more than the normal $20,500 to their TSP, all the way up to $61,000 in 2022. The details are important. Last week we went over TSP contributions by the numbers. So if you missed it go back to Episode 76 Change TSP Contributions for all the details.

I’m going to boil down all the info from last week and this week into a strategy to get the biggest bang for your compbat pay contributions. First, make sure you have enough cash for an emergency fund, you don’t have high interest debt like credit cards. Go over your cash flow or budget and see how much you can afford contribute while you’re deployed. This money will be locked up for a long time, so don’t over extend yourself.

Alright, here’s my recommendation for your combat pay contributions. 

First, contribute up to $20,500 limit into your Roth TSP or up to $27,000 if you will be 50 or older this year.

If you want to save more, next contribute up to $6,000 into a Roth IRA. Or $7,000 if 50 or older. You could also contribute to a ROTH IRA for a non-working spouse.

Want to save even more? Contribute up to another $40,500 of your tax-exempt combat pay into your Traditional TSP, $34,000 if 50 or older.

And once again, for more information on contributing to these accounts, head back to Episode 28 Meet ROTH, Episode 29 ROTH IRA, and Episode 30 To ROTH or Not to ROTH, and last week’s Episode 76 Change TSP Contributions.