How Much Will I Make On Deployment?
“How much will I make on deployment?” is a question that everybody should be asking right now. You need to set yourself up for success in case you’re able to deploy!
Bonus Combat Pay
Officially called “imminent danger pay”, a service member who is deployed to a combat zone will receive bonus combat pay of $225 per month! If you are deployed for a full year that comes out to an additional $2,700!
Admittedly, that isn’t a huge bonus for being placed directly (or indirectly) in harms’ way, but luckily there are other benefits too!
Also, your Basic Allowance for Housing rate will remain the rate of the service members’ duty station, with a few exceptions, like being potentially being in an individual augmentee assignment.
It is possible to lose your Basic Allowance for Subsistence (BAS) because your meals are being provided, but that isn’t always the case.
Congress and/or the President can designate combat zones as “tax-exempt” areas. That means any income you receive while receiving imminent danger pay would not be subject to a federal tax withholding.
This month I had $288.43 withheld from my paycheck for federal taxes. This number will obviously fluctuate depending on your base pay, and other taxable income. During a one year deployment, I would save $3,461.16 in taxes!
This exclusion is unlimited for enlisted servicemembers and capped at the maximum an enlisted member could be exempted for officers. Also, you only need to spend a single qualifying day in the combat zone in order to be exempt from paying taxes for the entire month!
In addition to the above benefits, service members with a family (dependents) will also receive a monthly separations pay, or Family Separation Allowance, of $250 per month. In order to receive this allowance, you need to be separated for more than 30 days, because the military sent you away.
Personally, I would rather see my family than earn a measly $250/month, but I won’t deny the extra spending cash!
Slash Your Expenses
When you are deployed your expenses plummet!
When I was deployed the only things I spent money on were some supplements from bodybuilding.com and the rare pack of cigarettes, monsters, or “pogey bait” (snacks) if we ended up near an installation that had a PX.
You can even freeze your cell phone plan/payment when you deploy, which saves a little bit of cash. You won’t be paying for your food, gas, entertainment, or much of anything while deployed. Some credit card companies and lenders may even let you cut the interest rate on your debt(s) when you deploy!
I definitely recommend calling all of your consumer debt/lenders in order to ask if they are willing to drop your rate for the deployment.
However, if you’re a family man/woman, you may find additional expenses too. For example, you may need to hire a babysitter or deal with moving back home for some time. There are a lot of possibilities, and not all of them are super affordable.
Just be sure that you and your partner talk through options, and use this time to save as much money as possible!
Thrift Savings Plan Deployment Contributions
A combat zone is an excellent time to dump money into your Thrift Savings Plan (TSP) in order to maximize your retirement account. This is the only way (that I know of) you can invest with tax-free dollars, and NOT have to pay any taxes when you withdrawal the money either!
Contributions to the Roth section of your TSP are post-tax contributions, meaning they are not taxed when you withdrawal the funds. However, since you are exempt from paying taxes while deployed, EVERY DOLLAR you contribute to your Roth TSP account will be completely tax exempt.
Let’s look at an example. A 30-year-old soldier, deployed to a tax-exempt income zone contributes $19,500 to her Roth TSP and $6,000 to her Roth IRA (Note: IRS 2019 contribution limits in 2019 are $19,500 for the TSP and $6,000 to an IRA for personnel under 50 years of age). If the service member lets this contribution stay in their TSP account as it grows for 30 years until they hit 60 years old, that will become quite a nest egg.
At a modest annual return of 7%, this soldier would have a balance in her TSP and Roth IRA of $148,439 dollars, all of which she could withdraw tax-free!
Thrift Savings Plan Combat Zone Advantages
If you have more than $25,500 to put towards retirement while you are deployed, the TSP allows that too! A deployed service member can contribute more than $19,500 to their TSP, all the way up to $57,000 in 2020. Amounts above $19,500 cannot be contributed to a Roth account, so it would only get two times the tax benefit, not the three times the Roth receives. Which is still incredible!
- Contribute up to $19,500 into your Roth TSP; then
- Contribute up to $6,000 into your Roth IRA, then
- Contribute up to $31,500 into your tax-exempt TSP
The TSP has many wonderful advantages, but these become way more powerful when you are serving in a combat zone, or tax-exempt status!
You will receive triple the tax benefits because
- you aren’t taxed when you earn the money,
- don’t pay taxes on the growth,
- you don’t pay tax when you withdraw it in retirement!
Talk about a HUGE win for the savvy investor.
This same dynamic exists to an individual retirement account (IRA) if you are contributing to a Roth IRA. Definitely max out your Roth TSP contributions before looking at a non-TSP IRA, because there aren’t many (if any) accounts that beat the TSP as a passive investment strategy.
Savings Deployment Plan
To top it all off, service members in a combat zone are authorized to deposit up to $10,000 (per year) of their pay and allowances into the Savings Deployment Program (SDP). The SDP pays a guaranteed 10% interest per year, and is a great place to stash some case while deployed!
The Savings Deployment Program compounds your interest quarterly, at a guaranteed 10% return annually. You can deposit money to the SDP out of another fund, which means you could fund the entire $10,000 upon opening the account, which is great!
This account is only an option while you’re deployed though, and then you would need to withdraw the funds.
|Savings Deployment Program (SDP)||Thrift Savings Plan (TSP)|
|Short-term Savings Program||Long-term savings program|
|Guaranteed 10% annual interest rate, compounded quarterly||Returns fluctuate based on investment strategy and market valuations|
|$10,000 maximum investment||$57,000 maximum contribution (as of 2020)|
|Accepts deposits from unalotted pay/allowances||Accepts Roth, tax-exempt, and tax-deferred contributions|
|Taxed||Possible to be completely tax-free|
|Must be withdrawn when deployment ends||You can keep this account through retirement|
|Deposits can be made my cash, check, money order, or payroll deduction||Contributions are made by payroll deduction|
Long-term, the Thrift Savings Plan is a better option for investing. However, if you are able to dump $10,000 into the SDP at the beginning of a deployment, and reap the guaranteed interest, that is a GREAT way to protect your short-term downside risk!
The bottom line is this, deployments can kill you…but they can also make you rich!