Preparing Your Finances for Deployment
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Which emotion best describes your pre-deployment state of mind? Excitement? Anxiety? If you're like many service members, or a military spouse, there's probably a lot of stress as well. While you can't eliminate pre-deployment stress, getting your finances under control can help reduce it. Developing a deployment financial plan and focusing on a savings routine will allow you to concentrate on your upcoming duties.
- First, ensure that all appropriate legal documents are in place and up to date, including a power of attorney (which enables someone you name to act on your behalf in financial and other matters), medical directives (in case you're injured) and will. These are the fundamental building blocks of a deployment financial plan. Take special care to follow your unit or service pre-deployment guidance. Make sure these documents are accessible to your loved ones in case they need them while you're away.
- Become familiar with protections provided by the Servicemembers Civil Relief Act (SCRA). You may be able to reduce the interest rate on debt incurred prior to your service, including student loans taken out since August 2008.
- Automate your finances. Set automatic drafts to pay regular bills, like a car loan, rent or mortgage and your phone bill. The bank or credit union that receives your direct deposit military pay can help you set up these payment schedules.
- Consider placing an active duty alert on your credit report. An active duty alert adds an extra layer of protection to the credit records of service members who are deployed, and requires businesses to take extra steps before granting credit in your name. Active duty alerts last for one year, and can be renewed to match the period of deployment. It does not cost you anything to place or remove the alert. A call to just one of the three major credit reporting bureaus is sufficient; each is required to notify the other two bureaus.
- Create a plan for your property, and discuss your plan with your insurance carrier. Your insurer may recommend adjustments in coverage that may save you money or provide appropriate coverage for unattended vehicles, real estate or personal property. Military storage lots may be available for the trucks, motorcycles and even boats and RVs. While these lots may be physically secure, they are usually exposed to the elements. Have a trusted friend or relative keep an eye on things for you.
- Ask your installation Personal Financial Manager (PFM) about deployment savings options, such as the Thrift Savings Plan (TSP) and the Savings Deposit Program (SDP). The TSP provides tax advantages for pay deposited in a retirement account while in a combat zone. The SDP guarantees interest well above market rates for pay earned in a combat zone and provides the means for service members to build wealth while deployed. Look into both; they can be great ways to sock away some money while deployed.
More about the Savings Deposit Program (SDP)
Administered by the Defense Finance and Accounting Service (DFAS), SDP offers a guaranteed annual return of 10 percent, compounded quarterly, on up to $10,000 in savings—a rate that far exceeds traditional savings accounts. The program was designed to provide members of the uniformed services in designated combat zones an opportunity to build their financial savings.
Who Can Participate?
You can participate in SDP if you are serving in a designated combat zone, qualified hazardous duty area or certain contingency operations outside the United States for more than 30 consecutive days or for at least one day for each of three consecutive months. You may deposit all or part of your unallotted pay including bonuses into an SDP account and receive a 10 percent return on up to $10,000 during a single deployment. Unallotted pay is the amount of money you receive after any authorized deductions, such as the Thrift Savings Program. You may contribute more than $10,000, but the excess will not earn interest.
How Does SDP Work?
To make a deposit into SDP, contact the finance office at your deployment location. You'll get help with the necessary paperwork and learn when you can begin making deposits. The last day to make a deposit into the account is the date of departure from the combat assignment; however, interest will accrue up to 90 days after your return from deployment.
Once you make your initial deposit, interest accrues on the account at an annual rate of 10 percent while compounding quarterly. For example, interest earned on $6,000 deposited into the SDP for eight months would total $408.38. The last day to make a deposit into the fund is the date of departure from the assignment, and interest will accrue at the 10 percent rate up to 90 days after return from deployment.
If you are on active duty, you may make deposits by cash, personal check, traveler's check, money order or allotment. Reservists can make deposits by cash, personal check or money order. Deposits must be made in $5 increments (e.g., $25, $100, $335) and are limited to an amount up to net unallotted current pay and allowances. You may make more than one deposit in a given month, but the cumulative total of the deposits cannot exceed the month's unallotted pay and allowances. (The maximum amount you may deposit to an SDP account and receive a 10 percent annual return is $10,000. If you wish to save amounts in excess of $10,000 for retirement, a superb vehicle is the Thrift Savings Plan.)
Once You Deposit
Once you have made your SDP deposit, interest accrues at the 10 percent annual rate for as long as you are in a combat zone and for up to 90 days after you leave the combat zone. Although it is beneficial to leave funds in your account as close to the full 90 days as possible after your deployment ends, it is up to you to withdraw the money and transfer it to another account. If you keep the money in your account after the 90-day period, it will sit dormant and earn no interest. DFAS periodically sends letters or e-mails notifying account holders of dormant SDP accounts, but it falls to the individual service member to take action to move the money.
Although federal income earned in hazardous duty zones is tax-free, interest accrued on earnings deposited into the SDP is taxable.
In most cases, you can make withdrawals only after you leave the combat zone and are no longer eligible to participate in SDP. Withdrawals while in a combat zone usually are permitted only in the event of an emergency, such as when the health or welfare of a member or dependents would be jeopardized if the withdrawal was not granted. Emergency withdrawals must be authorized by the member's commanding officer. Traditional withdrawals must be made after your deployment is complete.
Deployment to a combat zone carries risk, of course—but one reward is an ability to earn a tidy 10 percent on your savings. If you qualify, it's an excellent opportunity to jumpstart your savings.
Ten Percent Adds Up!
The table shows the impressive gains from even short-term deposits to an account earning 10 percent, compared to placing it in a regular savings account or doing nothing.
|Deposit Amt.||Interest Rate||Term||Earned Interest||Total|
Ready to Withdraw?
You can make a withdrawal request via e-mail, fax or mail. Each request must include your name, Social Security number, branch of service, component (e.g., active or reserve), start and stop dates of your tour, and amount requested.
Phone: (888) DFAS 411 (or 888-332-7411)
Fax: (216) 522-6924
ATTN: Savings Deposit Program
1240 E. 9th St.
Cleveland, OH 44199-2055