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These programs help guide military families through complex financial matters

Bill Simonet, managing partner at Simonet Financial Group
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Being a military service member or veteran comes with a unique set of challenges.

From time away from home and family to dealing with health care and benefits after service, it can be challenging for veterans. The good news is that there are programs available to veterans that can help with saving, investing and building wealth over time.

The following programs are positioned to give a vet some financial guidance:

Blended Retirement System (for active duty and reservists): In January 2018, the traditional military pension system was converted to the Blended Retirement System. The BRS combines elements of the legacy retirement system with benefits similar to those offered in many civilian 401(k) plans.

The program was designed to help the Department of Defense save money by reducing the costs of the existing pension system. Under the old system, a service member would have to stay in for a full 20 years to qualify for the military pension.

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Fewer than 20% of service members who enlist actually choose to make the military their career and retire out. The rest would separate from service with no retirement benefits. The BRS changes that.

Here are some pros:

  • Provides a benefit to service members even if they choose not to spend 20 years in the military.
  • Includes a government match of 1% on the Thrift Savings Plan, and vesting happens after just two years.
  • Receive a "continuation pay" bonus after 12 years of service that is paid to you as cash.
  • The pension option is still there for you if you serve for 20 years. There is also a "lump sum" payout that is available to you at retirement.

Here are some cons:

  • Overall retirement benefit from the BRS can be lower than the original pension.
  • Service members who joined after January 1, 2018 no longer have access to the original pension.
  • It can be confusing and a bit complicated.
  • Requires that service members actively participate in their retirement.
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Savings Deposit Program (for active duty and reservists): The Savings Deposit Program is a Department of Defense-sponsored savings account that offers deployed military members a guaranteed return on investment of 10% interest, compounded quarterly, on deposits of up to $10,000.

The program is one of the best savings options for young service members who are deployed in active combat zones around the world. The program pays 10% annualized rate of return on the contributions. In addition, the contributions are tax-free as long as they are made in a qualified tax-exempt zone. This offers an easy and effective way to put away $10,000.

Here are some pros:

  • Guaranteed 10% interest on contributions.
  • Funds and interest accumulate tax-free while service member is deployed in a qualified tax-exempt area.
  • Super simple to save because contributions are done through salary allotment.
  • Interest accrues for up to 90 days after leaving a combat zone.

Here are some cons:

  • You must be in a combat zone for at least 30 days or 1 day per month for 3 consecutive months to be eligible to participate.
  • Maximum contribution is limited to $10,000 per deployment.
  • You cannot make contributions once you leave the combat zone. In addition, you won't have access to the funds for 120 days after your deployment unless your balance is more than $10,000.
  • If there is a financial emergency, you would have to get permission from your unit commander to get an early distribution.
There are programs available to veterans that can help with saving, investing and building wealth over time.
Bill Simonet
managing partner at Simonet Financial Group

Thrift Savings Plan (for service members not on the BRS): The Thrift Savings Plan is the federal government's version of the civilian 401(k) plan. The rules are the same regarding contributions, distributions, required minimum distributions and so forth.

The key difference is that the TSP is the only plan that offers access to the Government Securities Investment Fund, or G Fund, in addition to four index funds. The G Fund invests exclusively in U.S. Treasurys, and contributions, as well as interest payments, are guaranteed by the U.S. government. This means that the G Fund cannot lose money. However, the G Fund does still have some risk.

Here are some pros:

  • It works like a 401(k) plan. Service members who become federal civilian employees may be eligible for a match.
  • The G Fund is backed by special issue Treasury bills and guaranteed by the U.S. government. It serves as a hedge against market fluctuations.
  • Service members can contribute while deployed to qualified tax-exempt areas. Contributions made deployed to these areas are tax-free and continue to grow tax-deferred.
  • Can be rolled over into a traditional individual retirement account or Roth IRA (when applicable).

Here are some cons:

  • The G Fund is only available in the TSP.
  • The G Fund is subject to inflation risk. Cost-of-living expense could potentially grow faster than the interest that accrues in the fund.
  • There is a limited number of investment options and no brokerage option.
  • There is no match for service members who are on the traditional pension retirement program.
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Small Business Administration Express Loan program (for active duty, reservists and veterans): Looking to start, buy or grow a business? The SBA has you covered. An Express loan issued through the SBA 7(a) Express Loan program could give a service member the cash they need to get up and running fast.

The Express Loan Program provides up to $350,000 to start or grow a business and loans can be approved in as little as 36 hours. Service members and veterans get the added benefit of priority processing and having guaranty fees waived. That's a savings of 3% or more on the cost of the loan.

Here are some pros:

  • Quick turn-around and priority processing for military and veterans.
  • Up to $350,000 for business (including real estate purchases).
  • Can be structured as a line of credit or traditional loan depending on the business' needs.
  • Guaranty fees for SMs and veterans waived.

Here are some cons:

  • Interest rates may be higher than conventional loan options (SBA interest rate is the prime rate plus 4.5% to 6.5%).
  • Very specific limits on what can and cannot be done with the loan.
  • Must have excellent credit and a well-structured business plan to qualify.
  • Loans limited to $350,000.

— By Bill Simonet, managing partner at Simonet Financial Group and a decorated Operation Iraqi Freedom Marine veteran.

Check out 5 Money Lessons Everyone Should Know by Age 30 via Grow with Acorns+CNBC.

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