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What is Co-Managed Care for Veterans?

Two Tax-Friendly Options for Military Retirement Cash


In these tough economic times, we don’t often hear about retirees’ financial success stories. Success stories from hardworking people who have made sound financial decisions over the course of their careers. They’ve saved consistently, spent judiciously, and invested wisely. And now, in their retirement, they have a surplus of money at the end of each month. We tip our hats to you.

At first glance, one might think this positive cash flow is cause to go on a shopping spree. But before you break out the wallet, there are a couple of things to think about: Unplanned expenses or emergencies and ever-increasing cost of living. For example, either you or a family member may be in an accident and incur medical expenses that are not fully covered by insurance. Or the property tax on your home increases. Even something as simple as an overly hot, dry summer could drive the cost of groceries outside of your budget. Any of these scenarios could place bigger burdens on your pocketbook than you’ve planned for. So since you’ve got the cash in the bank, why not make it work toward a more secure future?

Many financial planners recommend the following two deliberate, tax-friendly ways to put your extra cash to good use:

  • Reinvest in yourself
  • Reinvest in others’ education

Reinvesting in yourself

When you have a regular influx of surplus cash, no matter how large or small, it makes good sense to take opportunity of any tax advantages available. Traditional and Roth IRAs, both sound investments, may not make as much sense as retirement progresses. In fact, once you’ve reached age 70 ½, you cannot contribute to a traditional IRA. Another tax-friendly option is a guaranteed growth annuity, which has no age or contribution limits, guaranteed principal and minimum interest rates, and enables you to defer taxes on earnings until withdrawal. Investing any excess cash in a way that complements the rest of your portfolio can go a long way toward offering more financial security as time goes on. No matter where you invest, you’ll want to consider setting up an automatic monthly transfer from your checking account into your investment portfolio. Once it’s set up, you don’t have to remember to transfer funds on a certain date each month. And even better, you will have potential to earn interest.

Reinvesting in future generations’ education

Another great way to reinvest your hard earned retirement money is to help your children or grandchildren realize their educational dreams through a 529 College Savings Plan. The 529 CSP provides federal income tax-free withdrawals for qualified education expenses. You can make withdrawals for other purposes if you wish, but keep in mind that withdrawals for purposes other than the qualified education expenses are subject to income tax and they sometimes can incur an additional tax of 10% on the account’s earnings in the account. Unlike IRAs, contribution limits are not affected by the investor’s income level.

You’ve worked hard to earn your retirement and every bit of your personal success story. While it might be tempting to use extra cash for less frugal purchases (jetskis, anyone?) resist the urge if you can. Before you make any financial decisions about your extra retirement cash, make time to inform yourself about your options. As a military servicemember, you have a number of resources at your disposal. Talk to trusted financial advisors and do your own research.

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