@Nords is the resident military finance expert, so maybe he'll have some more specific thoughts for you.
I'll second @Nords as the guru you want to talk to!
Here is an article on the topic he wrote about 6 months ago.
https://the-military-guide.com/maximizing-your-thrift-savings-plan-contributions-in-a-combat-zone/
Thanks for the tags, Terran & Davisgang90!
I recently found myself with an excess of cash and was finally able to make a contribution to a taxable brokerage account with Betterment. The contribution was $5k and made in December 2020. Well this week I got news that I would be deploying to a tax free Combat Zone country some time this year. My question is should I sell my holdings with Betterment now in favor of utilizing the Savings Deposit Program (guaranteed 10% return)?
The balance has only grown to $5,160 since December so I can't imagine the tax implications of selling would be much but I have very little experience with taxable investment accounts given that this was the first time I had excess cash in addition to already being in position to max out my Roth IRA and Roth TSP (401k) for the year. If I do sell, I plan to invest the maximum allowed $10k in the SDP for the duration of my deployment.
Would it be better to sell and then max out my Roth IRA early first before touching SDP? I'm really just looking for clarity on what I should expect in way of taxes when the time comes and which account I should prioritize while down range.
Also, for extra info, my taxable income this year under normal circumstances would be a little over $40k. Typically deployments are anywhere from 3-6 months months so that would lower my taxable income anywhere from a fourth to half of that amount. I also plan to convert my traditional IRA balance to my Roth IRA account while deployed. I expect to max out my Roth TSP and Roth IRA contributions for the year already through dollar cost averaging but am open to knocking out the Roth IRA early or putting as much tax-free income into my Roth TSP during this time as possible if that's a more beneficial route.
Your first priority,
@browne497, if you’re in the Blended Retirement System, is to make sure that you contribute at least 5% of your base pay to the Roth TSP for every month in 2021. 12 months of 5% contributions will maximize your DoD BRS matching contributions. That post linked by Davisgang90 has a spreadsheet to help you map out the year’s contribution settings.
Your second priority (in the BRS and in the legacy High Three) is to make sure that you stay below the Roth TSP’s elective deferral limit ($19,500 in 2021) until December’s 5% contribution. Otherwise the TSP will cut off all further contributions for the rest of the year and you’ll lose out on BRS DoD matching. You’d also be cut off from contributing combat zone tax-exempt pay to the Roth TSP and to the traditional TSP.
Third, you have $160 in short-term capital gains in your Betterment account. The income taxes (at your personal income-tax bracket) aren’t going to make a difference in the long run. In fact, with <$40K taxable income, your combat zone tax-exempt pay, and the Earned Income Tax Credit-- you might pay zero income taxes for 2021.
You’ll probably still maximize your contributions to your Roth TSP and your Roth IRA. Converting your traditional IRA to a Roth IRA is a smart move.
Personally I think it’s a good idea to cash out of Betterment and maximize your SDP contributions, because it gives you a reset for more planning. You can spend your “spare” time during the deployment figuring out how you want to invest in your taxable accounts after the deployment-- Betterment (still)? Vanguard? Fidelity's zero-expense index fund? Another option would be to contribute some CZTE pay to your traditional TSP-- that blog post shows you how.
Read to the end of that blog post to learn how to tell the IRS (after your deployment) why you're earning all of that CZTE pay. It'll help you avoid a query letter.
You can only deposit an amount equal to your pay for that month. As an officer I was making about $7k a month so I would not be able to just deposit $10k on my 31st day in theater. If you're enlisted and only making $4k a month, that's all you can deposit that month, so it would take 3 months before you could deposit all $10k. I don't recall if it's base pay or base pay + all allowances (BAH, BAS, IDP, etc.) .
I haven't gotten to utilize the SDP myself before so I can only go by hearsay, but from what I've read from Military Money Manual's posts, you can supposedly get commander approval to make a deposit greater than what you've made during your time deployed to allow you to deposit the full $10k from the beginning (after 30 days of course). Now as to how easy it is to get that signature of approval, I'm sure it's subject to how easy it is to even get ahold of the commander of your deployed unit.
Hmm. I never heard that, and the E-4 at the finance counter probably won't have either. I was the commander so I suppose I could have waived the requirement for myself ;)
Yep, here’s the link to the Financial Management Regulation (DoD 7000.14-R) Volume 7A Chapter 51 paragraph 510205:
https://comptroller.defense.gov/Portals/45/documents/fmr/current/07a/07a_51.pdf“Deposits may not be more than the amount defined as un-allotted current pay and allowances in subparagraph 510202.C. When, however, the member can establish to the satisfaction of the commanding officer that the member was unable to make a deposit in the normal manner, un-allotted pay in excess of current pay and allowances may be deposited.”
Michael, I’ve heard that the lump-sum deposit depends on the personalities of the COs and the knowledge/proficiency of the finance office...
