Returning military need reentry plan
It may be many months–if not years–before U.S. troops make a permanent exit from wartime service. However, it never is too early for military personnel and their families to start talking about the right financial steps to take when returning home, according to the Financial Planning Association, Denver, Colo.
Here are some suggestions military personnel and their spouses should follow during deployment or at the end of their service:
Prevent identity theft. If a member of the military has not registered an “active duty alert” with the three major credit reporting companies (Transunion, Experian, and Equifax), they should de so immediately. Such an alert–effective for one year but renewable–instantly stops all credit offers from being mailed to their homes. A call to any one of the credit bureaus automatically will put an alert on an individual’s file with all three agencies. For extra protection, get a trusted family member authorized to check your credit report annually and place or remove an alert in your stead.
Know your rights if problems occur. The Servicemembers Civil Relief Act of 2003 provides a variety of financial protections for active duty personnel. The act provides stays on civil litigation, including bankruptcy and divorce, and prevents wage attachments when military personnel are away. Coverage requires active duty confirmation from a commanding officer, but expires 90 days after that status has been terminated. The law also makes it tougher–but not impossible–for landlords to evict military families for nonpayment of rent.
Note credit protections. The 2003 act also freezes credit card, mortgage, and some student loan interest at six percent if the military personnel were approved for the loans before they were called to active duty. On student loans, reservists and active duty members assigned away from their permanent duty stations may receive a deferment for up to three years on student-loan payments as well as a break on accruing interest on missed payments. Finally, deployed military away for at least six months can terminate a car, truck, or other vehicle lease without penalty.
Understanding tax issues. Activated and deployed military personnel receive special tax breaks at the Federal and sometimes state level. Military income earned by soldiers in combat zones is tax-free and they do not have to file taxes until 180 days after their return. Activated military personnel also are entitled to an extension on the period of time allowed for a tax break on the profits from the sale of a home as well as tax breaks on child care assistance and certain travel. Nontaxable combat pay can be considered for the Earned Income Credit.
Plan ahead for lump-sum earnings. For returning military receiving accumulated military pay or compensation from civilian employment, it is tempting to take the money and spend it. Instead, sit down with a tax and financial advisor before a dime gets wasted.
Know injury benefits. The Veterans Administration’s Traumatic Injury Group Life Insurance program, launched late in 2006, already has distributed more than $165,000,000 in grants between $25,000-$100,000 for wounded troops. Servicemen and women need to register for a monthly fee of one dollar for the extra coverage on top of what they pay for Servicemembers Group Life Insurance.
Do not forget retirement. Military service counts toward vesting for all civilian retirement plans–even though employers may not always be required to give you your job back when you return. Thanks to the Heroes Earned Retirement Opportunities (HERO) Act that passed in 2006, military and their families can put more money into traditional or Roth IRA accounts. The act allows tax-free combat pay to be considered as earned income for determining the contribution amount. Previously, a military person who earned only combat pay was not allowed to contribute to either form of IRA.