Military Finance Network

Military and government officials have been discussing adding a Roth Option for the TSP to try and bring the Thrift Savings Plan more in line with its civilian counterpart - the 401(k) plan. The benefit of offering a Roth TSP option is that Roth contributions are made with post tax salary, and withdrawals are tax free in retirement. This allows money invested in a Roth account to grow without the drag of taxes until the account holder reaches retirement age - potentially several decades.

Roth TSP plan may be several years off

The House recently approved a measure that will make the Roth TSP a reality for military and government Thrift Savings Plan holders, but it appears as though it may still take a couple years to toll the Roth TSP plan out to participating members, even if a bill is signed into law. The reason for the delay is that it will take TSP officials, military pay officials, and other federal agencies time to make the necessary changes in the payroll and accounting systems.

Additionally, a change such as adding a Roth option is a substantial enough change that the TSP Board will want to ensure that people are informed about the Roth option and will need to offer enough information to TSP participants to make sure they can make an informed decision regarding whether or not the Roth option would be better for them, or whether they should stick with the traditional offering.

Which is better - Roth or Traditional? The Roth and Traditional TSP plans would function in a similar manner as Roth and Traditional IRAs. I recommend reading on the pros and cons of investing in the IRAs to get a better idea of how it would differ with the TSP. Both options are good, but one may be better for you than the other, depending on your current and potential future income, and your current and potential future tax levels. You should make your decision based on those and other factors.

UPDATE: The first stimulus payments were sent Monday, June 22. All payments will be distributed by June 30.

Disabled military veterans currently receiving VA Disability Benefits are eligible to receive a one-time $250 Economic-Recovery Check from the US government. This is part of the American Recovery and Reinvestment Act that President Obama signed into law this past February.

Who is eligible for the $250 Stimulus Payment?

The $250 government stimulus check is for:

• Retirees, disabled individuals and Supplemental Security Income (SSI) recipients receiving benefits from the Social Security Administration.
• Disabled veterans receiving benefits from the U.S. Department of Veterans Affairs.
• Railroad Retirement beneficiaries.

This is a one time check that will be sent out in 2009. As of this writing, there are no plans to make this check available in 2010 or beyond.

VA Disability Beneficiaries stimulus check information

If you receive disability benefits from the VA, you will be among the thousands of individuals receiving this $250 stimulus check. Here is the information you need to know:

• You will receive a one time $250 check.
• You will receive the payment in the same method you receive your regular disability payment (direct deposit or physical check).
• Your $250 stimulus payment will not be included in your regular VA disability payment.
• The $250 stimulus check is not considered taxable income.
• The $250 stimulus check will not affect your disability rating or benefits.
• Your check may be used to offset debts owed to federal or state agencies (back taxes, child support, etc.).
• You can only receive one $250 stimulus payment, even if you are eligible for more than one payment, such as from Social Security, Supplemental Security Income (SSI)m or the Railroad Retirement Board. If you receive more than one check you will need to return it, or it will be taken from your account at a later date.

When will you receive your $250 stimulus check?

Disabled veterans should receive their payment by July 10, 2009. If you do not receive it by then, you should contact the Veterans Affairs Administration by e-mail, letter, or phone. Be sure to include your VA file number (usually SSN) when you contact them. Here is the contact information:

• Internet: https://iris.va.gov
• Phone: 1-800-827-1000, or 1-800-829-4833 (TDD)
• Mail: Department of Veterans Affairs, 1240 E 9th St, Cleveland OH, 44199

For more information about the $250 stimulus payment, check out the following websites:

• $250 Social Security And SSI 2009 Stimulus Check Information.

Saving money for your child’s education is an important thing to do, especially with tuition costs rising each year. Two of the most popular educational savings plans are the 529 College Savings Plan and the Coverdell Educational Savings Accounts (ESAs).

Both college savings plans offer tax advantages and may be good options depending on your needs. This article offers a comparison between both plans:  529 College Savings Plans vs. Coverdell ESAs.

The 529 College Savings Plan offers a more flexible plan for many people, so I thought I would share some of the tax advantages of saving for your child’s college education with a 529 College Savings Plan.

Tax Advantages of the 529 Plan

There are several major advantages to using a 529 College Savings Plan as a college savings vehicle.

• Tax exempt earnings. 529 earnings grow free from federal income tax as long as your withdrawals are used to pay for college expenses.
• Tax exempt withdrawals. Withdrawals from a 529 Savings plan are exempt from income taxes when used for qualified higher education expenses.
• Tax deductions and/or credits. Some states offer a state tax deduction or credit for contributions made to9 a 529 Savings Plan. Here is a list of states that offer this benefit.

Tax Disadvantages of a 529 Savings Plan

If you decide to make withdrawals from your 529 Savings Plan for something other than higher education expenses, you may be hit with penalties and taxes. In fact, the penalties are similar to the early withdrawal penalties for retirement fund. Any accumulated earnings are taxed, and you must pay an additional 10% penalty on your earnings.

Check with your 529 plan for more details

This article only includes a brief overview of the advantages and disadvantages of 529 plans. For more information, I recommend checking with the IRS or your individual plan.

Recommended articles about 529 plans:

• Our Son Just Turned One, Starting College Tomorrow.
• How to open a 529 college savings plan for your children.
• 529 Plan and College Savings: Should We Contribute?
• College Savings and Investing With 529 Plan and ESA.

Each state can offer their own 529 college savings plan and there may be differences among plans offered.

Where should you invest your money if you don’t want to take a lot of risk and you may need access to it in the near future? If you need the money within the next few years, you probably don’t want to take much risk with it. You should probably go for a guaranteed return.

Here is a recent reader question about where to invest money:

Hi, I am 68 yrs. old. I just came into some money and I need to put it somewhere safe; I don’t want to tie it up in a stock portfolio. Is there something that I can do to make a little money and still have access to it without going through paperwork to get it? I had thought about buying a condo with a couple people, and renting it out, but maybe there is something that I have not thought of, that some financial wizard can come up with. I need to make some decisions soon. I don’t mind investing it if can have ready access to it. Hope to get as many ideas and advice as possible. Thank you in advance, Kelley.

Short Term Investing

Hello Kelley, thanks for contacting me. The key with short term investing is realizing that you might need the money in a few years, so you want to avoid too much risk. Here are a few ideas for short term investing.

Avoid stocks and real estate. Since you are already at/near retirement age, you probably don’t want to put much money into stocks because of their volatility. Over short time periods the stock market can be wildly unpredictable and the last thing you want happening is having your portfolio down 30% when you need to withdraw the money.

If you need access to the money, you don’t want to tie it up into real estate, especially with other investors. Real estate investing with partners can be a tricky proposition because someone may wish to sell their equity, while others may want to keep renting out the property. You would also have to consider vacancies, maintenance, condo fees, and other situations that may arise.

Since you may need the money relatively soon, you should look into guaranteed investments.

CDs and savings accounts are guaranteed investments. As long as your bank is backed by the FDIC, then your Certificate of Deposit (CD) or savings account is a guaranteed investment and will not lose money. If you are investing for the short term and have a good idea when you will need the money, then a CD is not a bad way to go.

Choosing a CD ladders or savings accounts for short term investments

If you need full liquidity (access to the money at any given time), then I would recommend a high yield savings account, even though they may earn less interest than a CD. Savings accounts will never lose money and you should have unlimited access to your money.

If you want to earn more interest than most savings accounts and anticipate only needing some of the money at any given time, then I would recommend building a CD ladder. CD ladders will give you access to your money on a regular schedule - either annually or monthly, depending on how you set up the CD ladders.

The example used in the article above is a 5 year CD ladder, but you could just as easily build a 12 month CD ladder, ensuring you have access to your funds once a month instead of once a year. The other benefit of CD ladders is that if you have to break the CD, you only pay a couple months interest, which usually isn’t a big deal, and certainly isn’t as bad as losing a large portion of your principle as can happen in the stock markets, or having your money tied up in real estate.

As always, check with a professional financial planner before making any long term investing decisions.

Discover Card is offering Discover Card holders a special bonus for purchases made on military installations - double cash back from Memorial Day to Labor Day (05/25/09 - 09/07/09).

Double Cashback Bonus or Double Miles from Discover

Discover is offering automatic Double Cashback Bonus or Double Miles for all purchases up to $1,000 that are made on military installations worldwide.

• This includes purchases at any of the following locations on base: Commissary, Exchange (BX/PX, NEX, MCX), Shopette/Convenience Store, Exchange catalog, Exchange online store and Exchange Gas/Service Station.
• You will continue to earn up to 1% Cashback Bonus or 1 Mile for each dollar you spend, as applicable, on all other purchases including purchases at U.S. Military Bases in excess of $1,000 during the promotion period..
• Your promotional reward will be applied within 8 weeks..
• Cardmembers can now donate their rewards to Operation Homefront - an organization providing critical assistance to military families in need..
• Visit the Discover military appreciation website for more information.

Discover also has an article about Money Saving Tips for Military Families.

Apply for a Discover Card Now

Don’t have a Discover Card to take advantage of this offer? Here are some current Discover Card offers:

• $50 Cash bonus: Discover More Card - 1% cash back on everything.
• Gas Rewards Card: Discover Open Road (5% cash back on gas).
• Best travel card: Miles by Discover.
• Best student credit card: Discover Student.

Remember to spend wisely and pay your bills on time!