Deployment-Related Savings

by Phil Dyer, MOAA

Deployment requires a lot of families­ emotionally, physically and financially.  We all know that having a spouse gone for a year doesn’t equal an automatic decrease in expenses.  Whether your spouse is active duty or National Guard/Reserve, the current “op-tempo” requires careful use of all your available resources.

Fortunately, there are some significant financial benefits and protections that go hand-in-hand with deployment and/or activation.  But many of these excellent benefits go underutilized, since many families aren’t familiar with the “ins and outs”.  Here are some of the key programs you should be aware of:

The Servicemembers Civil Relief Act (SCRA) of 2003
Don’t Leave Home Without It!
Unfortunately, there is significant misinformation about how this law is actually applied.  Most protections are not automatic, but must be requested, often in writing.  Some of the key provisions are:

• The 6 Percent Rule–This mandates a 6-percent cap on loans and mortgages incurred prior to entering active duty (through either enlistment or mobilization) if military service materially affects the service member’s ability to repay the debt.  This often occurs when National Guard/ Reserve members are called to active duty and take a significant pay cut from their civilian sector employment.  If your civilian-sector employer provides pay differential in support of activated Guard/Reserve employees, it is unlikely this rule will apply.  Requests must be made to the lender in writing.
  
• Termination of Leases–This provision now allows for termination of leases on homes, apartments and automobiles leased by the service member and their dependents, even if the lease was entered into after coming into active duty.  PCS orders, or a deployment of 90 days or more, qualify the service member to break a residential real estate lease.  To break an auto lease you must receive overseas PCS orders or be deployed for 180 days or more.

Visit DefenseLink.mil/ra/mobil/pdf/scra_info-paper.pdf to learn more about SCRA, or talk to your installation legal specialist.

A Guaranteed 10 Percent Back
If you are currently serving as an active duty service member deployed to a combat zone, qualified hazardous duty zone or certain contingency operations, you may qualify for the Special Deposit Program.  Sponsored by the DOD, it guarantees 10 percent on funds deposited while deployed.  This rate is three to 10 times higher than that offered by most banks and credit unions; it’s twice current 1-year CD yields.

Key program points include:

• Qualifying service members can deposit up to $10,000 into the account during a single deployment via military pay allotment.
• Allotments must made be in $5 increments.
• Deposited money earns a guaranteed 10 percent, compounded quarterly.
• The allotment can be stopped at any time.
• The money stays in the account until the deployment ends (although hardship withdrawal requests can be made).
• If a service member is already deployed, an agent (spouse, parent or other family member) with a special power of attorney can start the allotment.

This is an outstanding guaranteed investment opportunity, one that all deploying service members should strongly consider. Visit DFAS.mil/army2/investmentoptions/savingsdepositprogramsdp.html for more information, or contact your unit financial specialist.

Combat Zone Tax-Free Pay and Other Benefits
Military pay received while in a combat zone or other qualifying hazardous duty area is tax-free, but what are the specifics?

• All pay received (including base pay, special pays and bonuses) is income tax-free up to the current maximum enlisted pay rate of $6,381.90 per month (plus imminent danger pay).
• Re-enlistment bonuses received during a qualifying deployment month are also tax-free, whether received as a lump sum or in installments.
• Thrift Saving Plan (TSP) contributions made while in a combat zone are not taxed on withdrawal or distribution.
• Due to the Heroes Earned Retirement Opportunities (HERO) Act of 2006, service members who were deployed in a combat zone or other qualifying hazardous duty area have up until May 28th, 2009 to make IRA contributions for tax years 2004 and 2005.  If the service member qualifies for a deductible traditional IRA, this can result in a tax refund for contributions made.  For those under 50, the IRA contribution limits are $3,000 for 2004 and $4,000 for 2005.  For those over 50, the limits are $3,500 and $4,500, respectively.  You will need to file Form 1040X, Amended Tax Return, to claim any benefit.