Deployment advice??

[kendrickg]

Hi all,

I'm getting ready to deploy in October. Any advice as to what I should do with my TSP allocations? I'm currently putting in 8%. Should I just leave this alone or should I stop it and put all in my Roth IRA? Any suggestions or comments?

Thanks

Gary

[Show-me]

Get the matching fund what ever you do. I have been kicking around the idea of cutting back my contributions to 5% from 15%and fully funding my ROTH. The most important thing is to contribute the 5% and get the matching fund. It's money in the bank.

Good luck on the deployment and thank you.:^

[mlk_man]

Put it in your Roth and invest in an Energy fund or ETF(XLE) and concrete companies(FRK). This particular company hasn't really had a down yoy in over 10 years.

JMHO

M_M

[mlk_man]

Oh, I agree with show-me also, put the 5% in your TSP.

[Show-me]

mlk_man wrote: Put it in your Roth and invest in an Energy fund or ETF(XLE) and concrete companies(FRK). This particular company hasn't really had a down yoy in over 10 years.

JMHO

M_M


Ha! My co-workers and I were just talking about Mexican concrete companies. Luv the energy and railroads. ACI, BTU, BNI, UNP, and NSC. Milk two more I have been watching are PANL and OLED. Not energy related but cutting edge stuff. Cooooool!

[kendrickg]

I'm active duty. What matching funds are we talking ab out?

[Show-me]

Let me do some searching.

[Show-me]

http://www.tsp.gov/uniserv/features/index.html

This is a link to the Uniformed Services page at tsp.gov. Unfortunately it looks like the government employees that deserve it the most are not eligible for matching funds. Sorry, that really sucks.

Service contributions:

The law that extended the TSP to the uniformed services allows the secretary responsible for that service to designate critical specialties for matching contributions. Members serving in these specialties who agree to serve on active duty for 6 years may be eligible for matching contributions. The matching contributions are made during the 6-year active duty obligation. If you are eligible to receive matching contributions, your service will match your basic pay contributions dollar-for-dollar on the first 3 percent of basic pay you contribute and 50 cents per dollar on the next 2 percent of pay per pay period. (As of the date of this publication, matching contributions had not been authorized by any of the uniformed services.)

[Show-me]

Being that you do not get any “matching funds� I personally would use any tax exempt monies to fund my Roth IRA first.

[Birchtree]

Kendrickg,

Don't worry about the Roth until you return - you can fill that sack at any time, you are limited to $4000.

Remember starting in 2006 there are no more % caps - you can put in $15,000.

Adjust your TSP account to an auto-pilot mode - and concentrate on your job and keeping your head down. Go with the best America has to offer from a value stand point - 100% C fund and adjust your allocation to reflect same. If we continue to trend sideways or go into a prolonged correction you make out like a bandit buying lower priced shares every two weeks - simple as simple can be - and very cost effective. If you notice your balance is decreasing don't worry - just keep the TSP on auto-pilot. If you are not way ahead by the time you return - come squeeze the fool that gave you these suggestions. You will be surprised how many shares you can accumulate when prices are cheap - but here is the catch. You more than likely will be making the majority of you purchases on the up side because the C fund is destined to out perform for the next couple of years - and you still end up doing fine. The goal is to accumulate shares on a consistant basis in all types of markets.

Are how many share you can accumulate by going to G and let it fall and cram your money back in. :D

Just like this:

http://chart.finance.yahoo.com/c/5y/_/_gspc

C fund better hold 1220. :shock::shock:

[TSP@ti2de]

Here's what I learned so far, after being 'in country' for just over a month:

Unless you have serious debt that you can't pay off by the time you leave the mobe station that would negate or offset any TSP earnings, pay that off, then do this:


Save up $10K for the Soldier Savings Plan at the mobe station so that you can 'max' the program right when you get here. Borrow the money if you have to. It is a RISK-FREE investment backed by the government that pays 10%/year, you have 90 days to withdraw after you get home, so you net about $1300.
MAX TSP at 10%; Special Pay / Bonuses / Incentive Pay at 100%.
If you are enlisted and want to re-enlist, do it incountry so the entire bonus is tax-free. Do the right thing with that money and put it towards your future.
When October rolls around, MAX everything so you can kick the full $15K
MAXyour Roth
Two words: FREE COLLEGE
Hang out with the TSP Talk folks and learn what to do with all that money!
I know right now it sounds impossible, but you can do it. It just takes discipline. I see lots of Joes here spend money onmeals/pop at the PX when it is FREE at the DFAC, and live from paycheck to paycheck whenthere is really not much to buy here. At the end of the tour, you will be proud of yourself for doing these things. Rock on!

[Birchtree]

My thinking is that in 2006 you may be able to do even more than the $15K, which is based on taxable income. Since you will be deployed there is no taxable base - you might be able to put the majority of your money to work in the TSP without hindrance. Select yourself an auto-pilot program and let dollar cost averaging be your investment guide. That way you participate in both up and down swings - some days you'll be lucky - some days you may have to pay higher prices. But the bottom line is you will be much further ahead when you return.

Dennis

[kendrickg]

Thanks for all the advice guys. I appreciate it. I'm going to try to max everything out and take advantage of it while I'm over there. Hopefully this will be my last trip.

Gary

[James]

Kendrickg,
I suggest following the advice given byTSP@ti2de (mailto:TSP@ti2de) that is exactly what I have been doing while deployed.

Birchtree,
Military service members only make contributions to the TSP once a month.

I have written my congress members about the lack of matching funds and they just pointed the finger elsewhere. I have posted information about that in this forum.

Birchtree,
Do you know where I can look or who I can contact to verify that deployed members in tax exempt zones will be able to contribute more than $15K to their TSP?

-James

[TSP@ti2de]

I went to my S1 and J1 personnel shops and repeated this conversation...

*crickets chirp, tumbleweed blows by*

I'm going to contact the TSP site and see what they say about the tax-free max.

[James]

I know what you mean. I have been asked by multiple leaders to give classes on the SDP and TSP. The admin sections only know how to get you signed up, but couldn't tell you the details of the programs.

[pyriel]

sheasljj wrote: Birchtree,
Do you know where I can look or who I can contact to verify that deployed members in tax exempt zones will be able to contribute more than $15K to their TSP?

-James

I need toget a life...

This is what you are looking for. Let me break it down for you...

Next year, TSP limit is lifted. However, IRS (party pooper) capped it at 15k.

Contribution Limits
In addition to the percentage contribution limits below, the maximum amount of your own pay that you can contribute to the TSP is also limited by the IRS. TSP employee contribution limits and IRS limits will increase each year, as follows:








Year

TSP Limits

IRS Limits


FERS

CSRS

Uniformed Services

Regular Contributions*

Catch-Up Contributions

Total Contributions


2003

13%

8%

8%

$12,000

$2,000

$14,000


2004

14%

9%

9%

$13,000

$3,000

$16,000


2005

15%

10%

10%

$14,000

$4,000

$18,000


2006 and thereafter

Limits eliminated

$15,000

$5,000**

$20,000


* For uniformed services participants, this includes incentive pay and special pay, including bonus pay.
** After 2006, this amount will be subject to increases to reflect inflation.

All of an enlisted member's and warrant officer's compensation is eligible for the combat zone tax exclusion. Officers, however, may exclude no more than the highest rate of basic pay paid to each service's senior enlisted member (and any hostile fire/imminent danger pay received by the officer).

Since your basic pay and special pay is tax exempt, you can actually put all of them in TSP. Why? Because they are not subject to the cap made by the IRS. Why? Because the cap only matters to the basic pay that is not tax exempt. Since your salary in the combat zone is tax exempt, they don't fall under the cap. Officers do have a cap as stated below.

Tax-Exempt Contributions
(http://tsp.gov/uniserv/features/#top)
When you serve in a combat zone or qualified hazardous duty area (http://tsp.gov/uniserv/features/def_ch1-combatzone.html), most compensation you receive for active service is excluded from your gross income (http://tsp.gov/uniserv/features/def_ch1-IRS-Code112.html) on your IRS Form W-2, regardless of whether you contribute any of it to the TSP. All of an enlisted member's and warrant officer's compensation is eligible for the combat zone tax exclusion. Officers, however, may exclude no more than the highest rate of basic pay paid to each service's senior enlisted member (and any hostile fire/imminent danger pay received by the officer).

In some cases, members who are serving outside a combat zone or qualified hazardous duty area but are directly supporting operations in such a zone or area can also qualify for the combat zone tax exclusion.

You receive no direct tax benefit from contributing pay to the TSP which has been excluded from gross income; however, the earnings on those contributions are tax-deferred.

When you make a withdrawal, money is taken from your total account balance proportionally from your taxable funds and your tax-exempt funds. The amount attributable to tax-exempt contributions will not be taxable.

Your service will notify the TSP whenever your contributions are from tax-exempt money. The TSP will then account for your tax-exempt contributions and, as indicated above, will ensure that these amounts are not reported to the IRS as taxable income. Consequently, those contributions will not be subject to taxation when you withdraw them. Your quarterly participant statement will show your tax-exempt balance separately.

Your service can tell you more about combat zone/qualified hazardous duty area service and whether you qualify for the tax exclusion. (See also IRS Publication 3, Armed Forces' Tax Guide.)

[TSP@ti2de]

Argh, you beat me to it! Here's the link for all that:

http://www.tsp.gov/uniserv/features/chapter16.html

[Neophyte]

....but there is an 'overall' limit on both tax-exempt and tax-deferred contributions as defined by I.R.C code section 415. For fiscal year 2006, the 'overall' limit is $44000.

(I'll only be tax free for 2-4 months of 2006, so there's no physical way for me to reach that limit this year, but if you can, more power to you!)

[TSP@ti2de]

Max your Roth before you leave, then max on TSP when you deploy.

[Gastrolith]

Here's what I learned so far, after being 'in country' for just over a month:

Save up $10K for the Soldier Savings Plan at the mobe station so that you can 'max' the program right when you get here. Borrow the money if you have to. It is a RISK-FREE investment backed by the government that pays
-------
Must you contribute to this plan only via payroll deduction or can you write a check?

I've read that contributions are limited to "un-alloted pay." Does that mean that I cannot start with a 10K contribution but must contribute only as much as unalloted pay? TSP allotment would greatly reduce this, if I'm reaching for the 15K or more yearly contribution.)

Thanks,
G

[OMA]

SDP pays 10 percent annual interest on deposits made by qualified service
members, compounded quarterly. Soldiers are able to contribute to their SDP
account on a monthly basis. The maximum amount that can be contributed
per month is limited to the soldier’s unalloted income which is the amount
remaining after the collection and payment of all existing taxes, allotments
and debt obligations. Total contributions for the year may not exceed
$10,000, and interest will only accrue on principal and interest up to $10,000.
Deposits to the program made on or before the 10th of the month accrue
interest from the 1st of the month. Deposits made after the 10th of the month
accrue interest from the first day of the following month.

Soldiers are able to make deposits into the SDP after serving 30
consecutive days in a designated area or by spending one day per month for
three consecutive months in a designated area. In order to establish your
SDP account, visit your local finance office, with a copy of a current LES, and
make a deposit by cash, check, or money order. Active Duty Members only
may make deposits by allotment. With an appropriate power of attorney,
outside parties are authorized to make deposits into the SDP program, as
long as the deposit does not exceed the service member’s monthly unalloted
income. A remark will appear monthly on your LES indicating the amount of
money, to include interest, you have accrued.

Withdrawals are limited, during the time within the designated area, to
those necessary to preserve the health or welfare of the service member or
their family. However, you may withdraw quarterly any interest which causes
your account to exceed the $10,000 limit. Interest will continue to accrue for
up to 90 days after redeployment. After 90 days, the balance of the SDP
account will be sent to the address provided by the service member.




The above is the information that finance in Bagram is issuing soldiers here - hope it helps.

[James]

A remark will appear monthly on your LES indicating the amount of money, to include interest, you have accrued.


A remark never appeared on my USMC LES. It was a small circus to get documentation to verify that account as an asset to mortgage lenders.

[pyriel]

....but there is an 'overall' limit on both tax-exempt and tax-deferred contributions as defined by I.R.C code section 415. For fiscal year 2006, the 'overall' limit is $44000.

(I'll only be tax free for 2-4 months of 2006, so there's no physical way for me to reach that limit this year, but if you can, more power to you!)
Are all special pay factored in with the 44K limit?
Let's use a doctor for an example and he/she is getting a special pay of 10k per year and he is NOT DEPLOYED. Can this doctor put in 15k coming out of his basic pay? And if he choose to contribute 100% ofhis special pay, this would mean that he is putting in 25k in TSP?
What happens if he is deployed, would we factor in the 44k limit plus his 10k special pay?
Can somebody direct me to the right direction...

[shiftomnimega]

The whole time I had SDP they never put remarks on my Army LES. I noticed that once I closed out the account I got a "monthly statement" even though it was the first one I ever got. On mypay it's the option below LES.

But about withdrawing... I hope everyone kept their Cash Collection Vouchers (CCV) for SDP. Two of my deposits are not recorded and DFAS is currently working on getting me the money back. The solution is faxing a copy of the CCVs for the missing deposits to DFAS. So not only do they have to repay me the principal of what I deposited, but also recalculate the total interest due to me.

Lesson learned: call DFAS and request your balance and interest periodically just to make sure that their records match your records.

Call them at 1-800-390-2348, (DSN) 580-5122 (7:00 A.M. – 6:30 P.M. / Eastern time)

[FatMoneyClip]

I hope everyone kept their Cash Collection Vouchers (CCV) for SDP. Two of my deposits are not recorded and DFAS is currently working on getting me the money back.

Good advice. I made deposits into the SDP 2002-2003. Evertime I made a deposit, I found a scanner on the base, scanned the CCV and uploaded it to my AKO files server. That way, if I lost the document OCONUS, I still had the scanned copy available.

Funny thing about the SDP. I NEVER got a SDP 1099-INT for 2002 or 2003. I requested a copy and everyone just gave me a blank look. 9 times out of 10, they would say "What is SDP?" Of course, those were the early years of OEF/OIF. Well, guess what happened this month... Two news option appeared on mypay.dfas.mil:
- Savings Deposit Program (SDP) Statements
- SDP Tax Statement 1099-INT

I guess an amended return is now in order.

[domingo3]

FatMoneyClip
I noticed the SDP statement appeared a couple weeks ago, but had to go back and look. Sure enough, I have an SDP Tax Statement for 2001 and 2002. I'm not trying to evade taxes, but I think that's far enough in history and such a little amount that I can forget about it. Now I know to look for it next time, though.

d3

[domingo3]

Are all special pay factored in with the 44K limit?
Let's use a doctor for an example and he/she is getting a special pay of 10k per year and he is NOT DEPLOYED. Can this doctor put in 15k coming out of his basic pay? And if he choose to contribute 100% ofhis special pay, this would mean that he is putting in 25k in TSP?
What happens if he is deployed, would we factor in the 44k limit plus his 10k special pay?
Can somebody direct me to the right direction...


The $44K limit is THE limit. No person can contribute more than 44K in one year - period.

Similarly, if you're not deployed, $15K is THE limit. The IRS doesn't care whether it's base pay, bonus, special duty, whatever. You just can't contribute more than $15K unless you're deployed.

I've been told that these rules are built in to the system. ie You can just go to MyPay and set your contributions to 100%/100%/100% and when you hit the limit, your contributions stop. When you get to Jan 1, you automatically start contributing again. Since this is the first year with unlimited base pay contributions, I haven't seen it in action yet. I have a certain amount of distrust of what people tell me about DFAS working properly. We'll see if it works like it's supposed to.

d3

[Machinist Mate]

Gary,I wont give you advice on TSP,but do thank you for serving our country.Be careful over there,and keep your eye on your buddy.Back in 69,I was in a similar position,and this war and rules of engagement are getting very political and thats a bad omen for a soldier.I will pray for you and your family.
Bill

[Birchtree]

What kind of sleaze hypocrite is this? He was only 14 years old in 1969. But he is gone now. There will always be justice delivered.

[Stepanwolf]

Greetings all,

Can anyone explain the point of maintaining TSP contributions during a deployment? Isn't the better plan to stop them altogether while your income is tax-free? Any thoughts?

Regards,

[tsptalk]

Can anyone explain the point of maintaining TSP contributions during a deployment? Isn't the better plan to stop them altogether while your income is tax-free? Any thoughts?
I don't know much about the tax laws as they pertain to military pay, but if are suggesting throwing money into a Roth instead of TSP while deployed, you may be on to something. No pre-tax or post-tax on earnings sounds like a sweet deal.

Welcome to the board, by the way!
Tom

[Stepanwolf]

Hey Tom,

Thanks for the welcome. The short course on military taxes is that all income is tax-free if you are deployed in a combat zone or qualified hazardous duty area as long as you are an O-4 or lower. My point was regarding the utility of using tax-free income to fund a tax-deferred investment. Assuming a 25% tax bracket and no credit card debt, it seems to me the investment priorities should be in the following order:

1. Full contributions into a Roth IRA;
2. $10,000 into the savings deposit plan; and
3. Everything else into a low-tax mutual fund for long-term investment (for example, VMCAX, not that I am pushing Vanguard).

I know that suggesting the discontinuation of TSP contributions in this forum may be heresy, but what is the point of deferring tax for a 25% rate on tax-free income when you could instead defer a 15% capital gains tax on the gain only, per option 3.?

Granted, I am assuming that the tax rates do not drop, and acknowledge that you would have less flexibility with the mutual fund, but I also believe there is the added benefit of tax diversification for retirement; tax-free (Roth), tax-deferred (TSP) and capital gains (mutual fund). What do you think?

Regards,

[tsptalk]

I agree - Take advantage of the tax savings and get more investment options. What's not to like? :)

[pyriel]

Hey Tom,

Thanks for the welcome. The short course on military taxes is that all income is tax-free if you are deployed in a combat zone or qualified hazardous duty area as long as you are an O-4 or lower. My point was regarding the utility of using tax-free income to fund a tax-deferred investment. Assuming a 25% tax bracket and no credit card debt, it seems to me the investment priorities should be in the following order:

1. Full contributions into a Roth IRA;
2. $10,000 into the savings deposit plan; and
3. Everything else into a low-tax mutual fund for long-term investment (for example, VMCAX, not that I am pushing Vanguard).

I know that suggesting the discontinuation of TSP contributions in this forum may be heresy, but what is the point of deferring tax for a 25% rate on tax-free income when you could instead defer a 15% capital gains tax on the gain only, per option 3.?

Granted, I am assuming that the tax rates do not drop, and acknowledge that you would have less flexibility with the mutual fund, but I also believe there is the added benefit of tax diversification for retirement; tax-free (Roth), tax-deferred (TSP) and capital gains (mutual fund). What do you think?

Regards,

I've always advocated that we should max out TSP and ROTH IRA. People will have different tax tax bracket and outlook on retirement which is why there is no right or wrong answer on which one should be funded and maxed out first. However, with this scenario, I agree that ROTH IRA should be funded first. I would also advocate that deployed soldier try to max out the caps for TSP while in theater (44k). Through compounding, 44k will go a long way than the regular 15k that we are allowed when we are not deployed.

Some people say that 44k is just too much to invest and it is hard to do. My recommendation is to skip SDP if you really don't need the money. SDP interest is limited for 10% and only good within a year (or several months after deployment). This is a good way of putting money aside instead of putting it in savings and if you plan on using it once you get home. But if you really don't need the money, you might as well put it in TSP so it can earn compounding interest.

Although, you may not use the TSP contribution to help you ease your tax burden for the following year, maxing out TSP will greatly help you in the future rather than putting it in a low tax mutual fund.

Having low tax mutual fund is good to have but only if you can max out both ROTH and TSP.

Pyriel

[Stepanwolf]

P,

I think for most service members, the Roth is a no-brainer. However, I can't see the point of using tax-free pay (combat zone) in a tax deferred investment (TSP). Assuming a 25% tax bracket in retirement (as I am), 30 years to retirement and $15,000, here are my numbers:

TSP Contribution: $15,000
Average Return: 8% compounded annually
Value after 30 years: $164,035.94
Taxable Basis: $164,035.94
Tax Rate: 25%
Tax Paid: $41,008.99
Net: $123,026.95

**or**

Low-Tax Mutual fund Investment: $15,000
Average Return: 8% compounded annually
Value after 30 years: $164,035.94
Taxable Basis: $149,035.94
Long Term Capital Gains Tax Rate: 15%
Tax Paid: $22,355.39
Net: $141,680.55

Difference: $18,653.60

Granted, no mutual fund will be completely tax free, and much of this depends on the fund manager's ability to do thier job in this regard, but I can't imagine there would be even close to $18,000 in taxes paid on the investment over 30 years. I know this also assumes tax rates do not go down, but by the some token they might go up, which would make the difference even larger. In the end, what does it for me is the diversification issue. I think too many people have only tax-free and tax-deferred investments for retirement, omitting long-term capital gains.

Again, I love the TSP, and with my state deferred compensation program, I put all I can into it. But when deployed and earning tax-free income, without the initial tax deferment, I just don't think it makes sense.


Regards,

[EW_ret]

Your calculations for TSP appear to be incorrect for the tax basis. You did not subtract the tax-free contribution of $15,000. The taxable basis for the TSP and taxable account should be same.

Second point is the taxable account expenses will turn 8% to 7.85% even if the taxable account is a low-cost index fund (0.05% TSP vice 0.20% taxable index).

Third point is I get $150,940 for the final value after thirty years not $164,036 at 8% return. At 7.85% I get $144,776 for the final value. This would also have effect on the comparison.

TSP tax: (150,940 - 15,000) X 0.25 = 135,940X0.25 = 33,985
TSP net = 150,940 - 33,985 = $116,955

Taxable account tax: ($144,776 - 15,000) X 0.15 = $19,466
Taxable net = 144,766 -19,466 = $125,300

The taxable account would have distributions and some could be short-term gains at 25% rate. This should minimal if you use a tax efficient funds, or stocks.

[Stepanwolf]

EW,

I don't think there is any basis to be subtracted for the TSP, as it is ALL pre-tax money (for two different reasons, but that is beside the point). All the TSP (priniciple plus gain) would be taxed as income for the owner.

I realize that I am assuming that I could find a low-cost, tax-friendly fund that would get TSP-like returns, but given the wealth of funds out there these days, I don't think that is unreasonable; I will research more.

Thanks for the correction on the calculation; looks like I used 31 years vice 30. The real issue is the basis; why do you think the $15,000 would be subtracted for the TSP?

Regards,

[EW_ret]

EW,

I don't think there is any basis to be subtracted for the TSP, as it is ALL pre-tax money (for two different reasons, but that is beside the point). All the TSP (priniciple plus gain) would be taxed as income for the owner.

I realize that I am assuming that I could find a low-cost, tax-friendly fund that would get TSP-like returns, but given the wealth of funds out there these days, I don't think that is unreasonable; I will research more.

Thanks for the correction on the calculation; looks like I used 31 years vice 30. The real issue is the basis; why do you think the $15,000 would be subtracted for the TSP?

Regards,

The TSP must track the tax-exempt and tax-deferred contributions by military members. Why should your tax-exempt combat pay contributions to TSP be taxed upon withdrawal from TSP? Combat pay is supposed to be tax-exempt. Refer to TSP tax notice http://www.tsp.gov/forms/octax92-32.pdf (http://www.tsp.gov/forms/octax92-32.pdf)

I agree with you 100% regarding putting most tax-exempt combat pay into the TSP funds. It does not make financial sense to place a lot of your tax-exempt pay into TSP because the earnings on that pay are taxed at ordinary income rates. These rates are likely to go higher in the years ahead. I have retirement funds in Traditional IRA, Roth IRA, Rollover IRA, TSP, and taxable accounts. It makes good financial sense to have money in all types of accounts because you do not know where tax rates are headed.

I do question the legality of placing tax-exempt money in a Roth IRA. I thought one must have taxable earned income, equal to or greater than the Roth contribution. Is military tax-exempt income the exception?


Thank you for keeping our freedoms intact, and taking the risks that these freedoms require. Being ex-Army, I remember the sacrifices you take to guard our country and our way of life.

[Stepanwolf]

EW,

Thanks for the info; I stand corrected. It seems counter-intuitive to me that pre-tax money would be part of a basis calculation if it was from combat pay but not from simple withholding, but it serves me right for trusting my intuition.

You are correct on the Roth issue; there is no military exception and your are limited by your taxable income. In practice, however, it is seldom an issue unless the servicemember is deployed for an entire calendar year. In my last deployment, I arrived in country in mid-February, and stayed for 13 months, so I had more than $4,000 in taxable income from January. Now if I could figure out how to get my cat listed as a dependent on my tax return, all would be well....

Regards,

[pyriel]

EW,

Now if I could figure out how to get my cat listed as a dependent on my tax return, all would be well....

Regards,

You can't do it in the 1040 but you can definitely put it in your W4. BTW, the W4 doesn't ask for name and social security of your cat...;-)

Pyriel

[Stepanwolf]

In case the IRS is monitoring this forum, I was kidding about my cat. Also, in 2005 the wet bar in my basement was a business expense and I am blind, as shown by mt piir typiong........

[pyriel]

EW,

Thanks for the info; I stand corrected. It seems counter-intuitive to me that pre-tax money would be part of a basis calculation if it was from combat pay but not from simple withholding, but it serves me right for trusting my intuition.

You are correct on the Roth issue; there is no military exception and your are limited by your taxable income. In practice, however, it is seldom an issue unless the servicemember is deployed for an entire calendar year. In my last deployment, I arrived in country in mid-February, and stayed for 13 months, so I had more than $4,000 in taxable income from January. Now if I could figure out how to get my cat listed as a dependent on my tax return, all would be well....

Regards,
Tax wise for the year, it is not helpful for the deployed soldiers to max out on the 44k allowable ceiling. However, if we are looking for tax deferred growth then it makes sense to put in 44k. Since the individual is deployed, there are no other qualified tax deferred retirement fund that he/she can set up. ROTH is out of the question if the individual deployed in Jan and stayed in theater for 12 month. Now, if they deployed later within the year, the ROTH will not help to lower down anyone's taxes for the year. 4k for ROTH vs. being able to sock away 44k to me is a good trade off, especially if we are to factor in compounding interest for long term growth.

Now, lets talk about low tax mutual fund. If you are on this board and playing your own TSP, how long do you think you'll be able to keep your hands off from that low tax mutual fund and lets say you have 30 years for retirement? Can you imagine jumping around like the way we do it here in Tom's site? How would you factor in other expenses associated with that?

[Bullishreturn]

Delpoyment Advice?

Keep your head down.

And keep away from windows and doors. Especially if you see any vehicles headed your way.

Keep your body armor on, keep your weapon clean. Keep your helmet chin strap on. And drink LOTS of water. All the time.

[James]

ROTH is out of the question if the individual deployed in Jan and stayed in theater for 12 month.

Pyriel,
I must disagree. I deployed in January 2005 and returned in Jan 2006. In fact I got back to Camp LeJeune 361 days after I left. But that entire month of Jan 2005 was tax exempt.

I had maxed out my Roth IRA that I opened while deployed before I read about the need for taxable income in order to contribute to a Roth IRA.

Thank goodness that I was renting my house while I was deployed. The rental income more than covered the taxable income for my Roth IRA, thus saving me from a major issue.

[pyriel]

Pyriel,
I must disagree. I deployed in January 2005 and returned in Jan 2006. In fact I got back to Camp LeJeune 361 days after I left. But that entire month of Jan 2005 was tax exempt.

I had maxed out my Roth IRA that I opened while deployed before I read about the need for taxable income in order to contribute to a Roth IRA.

Thank goodness that I was renting my house while I was deployed. The rental income more than covered the taxable income for my Roth IRA, thus saving me from a major issue.

Hmmm... I believe we might have a discrepancy here. rental income may not be used as income for ROTH IRA. Rental income falls under the business expense and must be reported with the 1040. I believe you need to use either Schedule E or C? The only caveat to that is for the rental providing income to you by taking out federal taxes, state taxes, FICA, medicate etc.... This means that the business must report this to the IRS. This will then become the taxable income that qualifies for the ROTH IRA.

Of course i'm sure that you are just testing me and what you just mentioned earlier is actually hypothetical. Good luck...

Pyriel

[FatMoneyClip]

Tax-free combat pay can be placed in a ROTH IRA.

THE FOLLOWING PRESS RELEASE CAN BE FOUND AT: http://www.irs.gov/newsroom/article/0,,id=161175,00.html

New Law Expands IRA Options for Military; Many Can Still Contribute for 2004 and 2005

IR-2006-129, Aug. 18, 2006

WASHINGTON — Members of the military serving in Iraq, Afghanistan and other combat zone localities can now put money into an individual retirement account, even if they received tax-free combat pay, according to the Internal Revenue Service.

Under the Heroes Earned Retirement Opportunities (HERO) Act, signed into law on Memorial Day, taxpayers can now count tax-free combat pay when determining whether they qualify to contribute to either a Roth or traditional IRA. Before this change, members of the military whose earnings came entirely from tax-free combat pay were generally barred from using IRAs to save for retirement.

“The HERO act is one more way to let our fighting forces in combat areas know that we support them,” said IRS Commissioner Mark W. Everson. “This is a good way for people serving in combat zones to save more of their earnings for retirement.”

In addition, the HERO Act allows military personnel who received tax-free combat pay in either 2004 or 2005 to go back and make IRA contributions for those years. Eligible military members will have extra time, until May 28, 2009, to make these special back-year contributions.

For those under the age of 50, the IRA contribution limit was $3,000 for 2004 and $4,000 for 2005. For those 50 and over, the limit was $3,500 for 2004 and $4,500 for 2005.

Taxpayers choosing to put money into a Roth IRA don’t need to report these contributions on their individual tax return. Roth contributions are not deductible, but distributions, usually after retirement, are normally tax-free. Income limits and other special rules apply.

On the other hand, contributions to a traditional IRA are often, though not always, deductible, and distributions are generally taxable.

Deductible or not, contributions to a traditional IRA must be reported on the return for the year made. Deductible contributions are claimed on Form 1040, 1040A or 1040NR. Nondeductible contributions are reported on Form 8606, which is normally attached to one of these individual return Forms.

If a return has already been filed for a particular year, contributions should be reported on an amended return, Form 1040X. Depending upon the circumstances, military personnel who choose to put money into a traditional IRA for 2004 or 2005 may qualify for additional tax refunds.

For those planning ahead, the IRA contribution limit for 2006 is $4,000 for those under age 50 and $5,000 for those 50 and over.