Military Banking Rates

Deploying? Put Your Combat Pay to Work!

By

Posted in Articles

combat payDeploying to a combat zone or other area designated as a tax-free zone can be a stressful time both for the military member and his or her family. But that doesn”t mean it isn”t without its benefits. I deployed five times while I was on Active Duty, and each time I came back with different rewards — including personal and professional growth, a new-found respect for our military and a fatter wallet.

There are a variety of financial benefits that come from deploying, and tax free pay and combat pay are among the most valuable of these benefits.

Qualifying for Combat Pay

Combat pay, officially called “imminent danger pay,” is a tax-exempt stipend worth $225 per month. To qualify for combat pay, you must serve in a designated combat zone for at least one day in a month.

You must actually serve “on the ground” to qualify for combat pay in some locations, while you may qualify in other locations by serving in an air crew or serving aboard a ship at sea.

Qualifying for imminent danger pay is usually enough to qualify you for tax-exempt pay as well. If you qualify, 100 percent of the base pay is tax exempt for enlisted personnel and warrant officers. Officers are also eligible for tax exempt pay, but it is limited to the highest rate of enlisted pay; after that, income is considered taxable.

Additional Financial Benefits of Combat Pay

There are other benefits beyond the immediate receipt of tax free pay. Here are some of the financial benefits of deploying to a tax free zone:

  • Earn a guaranteed 10% return with the Military Savings Deposit Program
  • Free tax extension
  • Tax exempt TSP contributions
  • Ability to contribute to Roth IRA with tax-free income

Military Savings Deposit Program

The next big benefit is being able to participate in the casino Military Savings Deposit Program and earn a guaranteed 10% return on investment, which is unheard of outside the military world. With this program, you can contribute part or all of your base pay and earn 10% interest, compounded quarterly. There are a few exclusions, so be sure to read up on it before starting your investments.

Tax Extensions

Serving in a tax-free combat pay zone also allows you to file for a free extension on your tax return for up to 180 days after you return from the designated zone. This extension gives you more time to file your return, pay any taxes if you owe them, file for your refund or even contribute to your IRA.

TSP Contributions

If you participate in the Thrift Savings Plan, you can make tax-exempt contributions. TSP contributions are treated similar to a traditional 401(k) plan, where contributions are made on a pre-tax basis.

Because the money you are contributing to your TSP is tax exempt, it is treated differently. This gives you the ability to roll the tax-exempt portion into a Roth IRA when you leave the service if you decide to roll over your TSP into an IRA.

IRA Contributions

Another way to put your deployment earnings to work is to contribute to an IRA. Tax payers must have earned income to be eligible to contribute to an IRA, but the Heroes Earned Retirement Opportunities (HERO) Act makes it possible for military members to contribute to an IRA even if all of their income is tax-exempt. The tax deferred growth gives you another opportunity to earn benefits from your service in the years to come.

Finally, you can put your extra deployment income to work by accelerating any debt payments you may have. Paying off debt is a guaranteed return on investment and will go a long way toward improving your credit score, increasing your cash flow, and giving you a buffer in your budget.

When you combine the $225 combat pay benefit, the tax free benefits on your base pay, and these other financial benefits, you can see how a deployment can give you a big financial boost.