Military Savings Plans

Kevin McCormally: I am Kevin McCormally of Kiplinger's and I am here with Kim Lankford, a Contributing Editor of Kiplinger's Personal Finance Magazine to talk about retirement planning for military families. Kim, I know your husband is in the army, so you have a personal interest in this, as well as hearing from a lot of readers. How is retirement planning for military families different than for civilians? Kim Lankford: Well, people in the military have a very generous pension, it's half of their base pay that they can start getting as young as age 37, but you need to spend 20 years in the military first. There is no partial vesting unlike many other pensions. So if you are there just 18, 19 years, you get nothing. Kevin McCormally: Okay, so beside the pension, what else is available to military families? Kim Lankford: Because of that pension vesting rules, you really need to do a lot of saving on your own and military families can invest in a Thrift Saving Plan which is a lot like a 401k unless you put free tax money in and take it out after retirement. Kevin McCormally: And there is a special deal for combat pay, right? Kim Lankford: Exactly. Combat pay, while you are in combat zone, you get a lot of your pay as tax free, so your paychecks are going to go up significantly while you are there. Kevin McCormally: And that extra money should go into the Thrift Saving Plan? Kim Lankford: That's a perfect opportunity to really boost up your retirement savings. You can go beyond the 15,000 regular limits per year, if you have money from a combat zone and we recommend putting as much of that possible into your Thrift Saving Plan. Kevin McCormally: Okay and what about IRAs? Can military people use the IRA? Kim Lankford: Well, it's interesting. Congress passed a law that changed the rules about that. In the past, if you had tax-free income for the whole year, you couldn't invest in an IRA, but now you can do that and it's a great idea to invest money in a Roth IRA. Kevin McCormally: The Roth, because the money would be tax free when it comes out. Kim Lankford: That's right. You really can make the most of your tax benefits now and then later on have that tax free money. Kevin McCormally: Thank you very much, Kim.