military pay grade does a traditional IRA make good sense ??

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rocket
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military pay grade does a traditional IRA make good sense ??

Post by rocket »

At what military pay grade does a traditional IRA or TSP become more beneficial than a Roth IRA or Roth TSP ??? I changed the question.
Notes to evaluate question
year 2013
E-3 PFC gross $18,192
E-4 $28,836
E-5 $36,768
E-6 $43,800
year 2012
25% marginal tax bracket for single is $35,350 to $85,650
25% marginal tax bracket for MFJ is $70,700 to $142,700

A single E-6 would be in the 10% tax bracket (less than $35,350), with standard deduction and 1 exemption.
A single E-6 $43,800 - $5,950 Standard Deduction - $3,800 exemption = $34,050

Usually, anyone in the 10% tax bracket should use Roth TSP or IRA, and not use tax deferred traditional TSP or IRA.
Usually any single E-6 or lower pay grade should use Roth type account.
Last edited by rocket on Mon Mar 18, 2013 10:05 pm, edited 3 times in total.
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SpaceCommander
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Re: military pay grade does a traditional IRA make good sens

Post by SpaceCommander »

I'd max out your TSP before putting one penny in an IRA (traditional or Roth). The choice between traditional and Roth will depend on your individual tax situation. In sum: max TSP first. Then IRA; then taxable. Your pay grade has nothing to do with it.

JC
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Re: military pay grade does a traditional IRA make good sens

Post by FillorKill »

I doubt you would even want to consider it (meaning choosing a TRAD over a ROTH IRA which I think might be your question; maybe not) before your marginal federal rate is 25%. However much more info would be required for more than a fairly hazy rule of thumb.... :beer
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Re: military pay grade does a traditional IRA make good sens

Post by retiredjg »

rocket wrote:At what military pay grade does a traditional IRA possible good sense ???
I don't think there is an answer to this question.
  • -whether tIRA is a good idea depends (partially) on your tax bracket; pay grade does necessarily correlate with tax bracket

    -whether tIRA is a good idea depends (partially) on whether you can/want to deduct the contributions

    -tIRA as opposed to what? not contributing to IRA at all? putting the money in the TSP instead?
If you are in the military, the best choice is to fill your TSP as much as you can every year. If you have more money to save, consider an IRA too. Whether that IRA is traditional (deductible or non-deductible) or Roth depends on your total situation.
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Re: military pay grade does a traditional IRA make good sens

Post by rocket »

retiredjg wrote:
rocket wrote:At what military pay grade does a traditional IRA possible good sense ???
  • -whether tIRA is a good idea depends (partially) on your tax bracket; pay grade does necessarily correlate with tax bracket.

    -whether tIRA is a good idea depends (partially) on whether you can/want to deduct the contributions

    -tIRA as opposed to what? not contributing to IRA at all? putting the money in the TSP instead?
If you are in the military, the best choice is to fill your TSP as much as you can every year. If you have more money to save, consider an IRA too. Whether that IRA is traditional (deductible or non-deductible) or Roth depends on your total situation.
" .... depends (partially) on your tax bracket; pay grade does necessarily correlate with tax bracket." E-3s, and maybe E-4s, are probable pay 0% taxes.
Rate of pay has an extremely high corelation to tax bracket.
"whether tIRA is a good idea depends (partially) on whether you can/want to deduct the contributions." If someone pays 0% taxes, a T IRA or T TSP does not provide a deduction.
Last edited by rocket on Tue Mar 19, 2013 8:07 am, edited 2 times in total.
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Re: military pay grade does a traditional IRA make good sens

Post by retiredjg »

rocket wrote: E-3s, and maybe E-4s, are probable are in the 0% tax bracket.
In the 0% tax bracket, there is no reason to use a tIRA. Roth IRA/Roth TSP are the only choices that would make any sense. However, for a single person, the 0% tax bracket is under about 10k a year salary. Are you saying that E-3s and E-4s make under $10k a year?

Rate of pay has an extremely high corelation to tax bracket.
This is true. But other things are involved in determining your tax bracket as well. Married? One income or two? Kids? How many? Homeowner or rent? In combat? All these things affect your tax bracket.

If someone is in the 0% tax bracket, a T IRA or T TSP does not provide a deduction.
I'd have to agree.

At what military pay grade does a traditional IRA or TSP become more beneficial than a Roth IRA or Roth TSP ??? I changed the question.
For someone not in combat, I'd say about the 25% tax bracket would be about the same - meaning traditional and Roth may end up being about the same in the long run. There is no way to know what pay grade that would be without looking at your specific situation.

But it also depends on whether the person will stay and get a military pension. With a pension, Roth might become more beneficial in the 25% bracket.
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Re: military pay grade does a traditional IRA make good sens

Post by retiredjg »

rocket wrote: E-3s, and maybe E-4s, are probable are in the 0% tax bracket.
In the 0% tax bracket, there is no reason to use a tIRA. Roth IRA/Roth TSP are the only choices that would make any sense. However, for a single person, the 0% tax bracket is under about 10k a year salary. Are you saying that E-3s and E-4s make under $10k a year?

Rate of pay has an extremely high corelation to tax bracket.
This is true. But other things are involved in determining your tax bracket as well. Married? One income or two? Kids? How many? Homeowner or rent? In combat? All these things affect your tax bracket.

If someone is in the 0% tax bracket, a T IRA or T TSP does not provide a deduction.
I'd have to agree.

At what military pay grade does a traditional IRA or TSP become more beneficial than a Roth IRA or Roth TSP ??? I changed the question.
[/quote]
For someone not in combat, I'd say about the 25% tax bracket would be about the same - meaning traditional and Roth may end up being about the same in the long run. There is no way to know what pay grade that would be without looking at your specific situation.

But it also depends on whether the person will stay and get a military pension. With a pension, Roth might become more beneficial in the 25% bracket.


I think you are asking a question that cannot be answered. We need to know more about the specific situation you are talking about.
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Re: military pay grade does a traditional IRA make good sens

Post by SteveNet »

SpaceCommander wrote:I'd max out your TSP before putting one penny in an IRA (traditional or Roth). The choice between traditional and Roth will depend on your individual tax situation. In sum: max TSP first. Then IRA; then taxable. Your pay grade has nothing to do with it.

JC
From what I understand the TSP matches up to 5% of income.
At least that is what my son was getting, take the free money first :beer
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Re: military pay grade does a traditional IRA make good sens

Post by SpaceCommander »

SteveNet wrote:
SpaceCommander wrote:I'd max out your TSP before putting one penny in an IRA (traditional or Roth). The choice between traditional and Roth will depend on your individual tax situation. In sum: max TSP first. Then IRA; then taxable. Your pay grade has nothing to do with it.

JC
From what I understand the TSP matches up to 5% of income.
At least that is what my son was getting, take the free money first :beer
Not for the uniformed services. Those in uniform receive no match because they are also eligible for a pension at 20 years.
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Re: military pay grade does a traditional IRA make good sens

Post by SteveNet »

SpaceCommander wrote:
SteveNet wrote:
SpaceCommander wrote:I'd max out your TSP before putting one penny in an IRA (traditional or Roth). The choice between traditional and Roth will depend on your individual tax situation. In sum: max TSP first. Then IRA; then taxable. Your pay grade has nothing to do with it.

JC
From what I understand the TSP matches up to 5% of income.
At least that is what my son was getting, take the free money first :beer
Not for the uniformed services. Those in uniform receive no match because they are also eligible for a pension at 20 years.
Memory isn't serving me well then, or I'm just confuddled.
My son was in the Navy 11 yrs, I thought he was doing TSP then, he's still doing the same job on the same base for the Feds now out of uniform of course.
My bad.
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Re: military pay grade does a traditional IRA make good sens

Post by rocket »

retiredjg wrote:
rocket wrote:At what military pay grade does a traditional IRA possible good sense ???
I don't think there is an answer to this question.
  • -whether tIRA is a good idea depends (partially) on your tax bracket; pay grade does necessarily correlate with tax bracket
    -whether tIRA is a good idea depends (partially) on whether you can/want to deduct the contributions
    -tIRA as opposed to what? not contributing to IRA at all? putting the money in the TSP instead?
If you are in the military, the best choice is to fill your TSP as much as you can every year. If you have more money to save, consider an IRA too. Whether that IRA is traditional (deductible or non-deductible) or Roth depends on your total situation.
TSP comes in 2 flavors; traditional tax deferred (like traditional IRA) and ROTH now.
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Re: military pay grade does a traditional IRA make good sens

Post by rocket »

retiredjg wrote:
rocket wrote: E-3s, and maybe E-4s, are probable are in the 0% tax bracket.
In the 0% tax bracket, there is no reason to use a tIRA. ...... However, for a single person, the 0% tax bracket is under about 10k a year salary.
There is no 0% tax bracket. The lowest marginal tax bracket is 10%.
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Re: military pay grade does a traditional IRA make good sens

Post by retiredjg »

rocket wrote:
retiredjg wrote:
rocket wrote: E-3s, and maybe E-4s, are probable are in the 0% tax bracket.
In the 0% tax bracket, there is no reason to use a tIRA. ...... However, for a single person, the 0% tax bracket is under about 10k a year salary.
There is no 0% tax bracket. The lowest marginal tax bracket is 10%.
Then why did you post that "E-3s, and maybe E-4s, are probable are in the 0% tax bracket"?
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Re: military pay grade does a traditional IRA make good sens

Post by retiredjg »

rocket wrote:
retiredjg wrote:
rocket wrote:At what military pay grade does a traditional IRA possible good sense ???
I don't think there is an answer to this question.
  • -whether tIRA is a good idea depends (partially) on your tax bracket; pay grade does necessarily correlate with tax bracket
    -whether tIRA is a good idea depends (partially) on whether you can/want to deduct the contributions
    -tIRA as opposed to what? not contributing to IRA at all? putting the money in the TSP instead?
If you are in the military, the best choice is to fill your TSP as much as you can every year. If you have more money to save, consider an IRA too. Whether that IRA is traditional (deductible or non-deductible) or Roth depends on your total situation.
TSP comes in 2 flavors; traditional tax deferred (like traditional IRA) and ROTH now.
I'm aware of that. But you asked about when it is favorable to use traditional IRA.
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Re: military pay grade does a traditional IRA make good sens

Post by _james »

SpaceCommander wrote: I'd max out your TSP before putting one penny in an IRA (traditional or Roth). The choice between traditional and Roth will depend on your individual tax situation. In sum: max TSP first. Then IRA; then taxable. Your pay grade has nothing to do with it.
What is the benefit of maxing TSP first? I have been maxing my Roth IRA and putting extra into my TSP after. I do not receive matching as I'm not a GS employee I'm active duty. Thanks in advance!
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Re: military pay grade does a traditional IRA make good sens

Post by Alex Frakt »

retiredjg wrote:
rocket wrote:
retiredjg wrote:
rocket wrote: E-3s, and maybe E-4s, are probable are in the 0% tax bracket.
In the 0% tax bracket, there is no reason to use a tIRA. ...... However, for a single person, the 0% tax bracket is under about 10k a year salary.
There is no 0% tax bracket. The lowest marginal tax bracket is 10%.
Then why did you post that "E-3s, and maybe E-4s, are probable are in the 0% tax bracket"?
Tongue-in-cheek? There is no 0% bracket, but plenty of people pay a 0% federal income tax rate due to deductions and other adjustments.
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Re: military pay grade does a traditional IRA make good sens

Post by rkhusky »

_james wrote:
SpaceCommander wrote: I'd max out your TSP before putting one penny in an IRA (traditional or Roth). The choice between traditional and Roth will depend on your individual tax situation. In sum: max TSP first. Then IRA; then taxable. Your pay grade has nothing to do with it.
What is the benefit of maxing TSP first? I have been maxing my Roth IRA and putting extra into my TSP after. I do not receive matching as I'm not a GS employee I'm active duty. Thanks in advance!
It depends on what your tax bracket is now and what it will be in retirement. It also depends on the size of your pension. If you have no pension, then a portion of your retirement income will be taxed at 0%, another portion at 10%, another portion at 15%, and so on. By investing in the TSP, you could pay no tax now and no tax later on some of your investments. But if you have a large pension, the first portion of your retirement income might get pushed up to the 15% bracket, for example. If you are in the 15% bracket now, then it would be close to a wash which is better.
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Re: military pay grade does a traditional IRA make good sens

Post by dhodson »

_james wrote:
SpaceCommander wrote: I'd max out your TSP before putting one penny in an IRA (traditional or Roth). The choice between traditional and Roth will depend on your individual tax situation. In sum: max TSP first. Then IRA; then taxable. Your pay grade has nothing to do with it.
What is the benefit of maxing TSP first? I have been maxing my Roth IRA and putting extra into my TSP after. I do not receive matching as I'm not a GS employee I'm active duty. Thanks in advance!
If you are maxing both then it really doesnt matter which one is first. TSP is one of the best programs out there bc of low costs. I believe they were or have developed a roth program but if not then what it comes down to is tax deduction/deferal. If you believe you will be taxed at a higher rate when you take money out then most would say do roth first. Historically most people likely have been taxed at a lower rate in retirement but it depends on the amount of money and the tax rates at the time of retirement compared to when the money was placed into the account. Since nobody knows the future tax rates, you have to guess a little. Bottom line is both are good options and if possible id max both out.
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Re: military pay grade does a traditional IRA make good sens

Post by TriNut »

There is one drawback to the new Roth TSP, in my eyes, if you have a monies in both the traditional TSP and R/TSP you don't get to decide which account withdrawls are made from. If your total TSP account is 60% traditional and 40% Roth any withdrawl will be made between the 2 accounts at the same percentages.
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Re: military pay grade does a traditional IRA make good sens

Post by rocket »

retiredjg wrote:
rocket wrote:
retiredjg wrote:
rocket wrote: E-3s, and maybe E-4s, are probable are in the 0% tax bracket.
In the 0% tax bracket, there is no reason to use a tIRA. ...... However, for a single person, the 0% tax bracket is under about 10k a year salary.
There is no 0% tax bracket. The lowest marginal tax bracket is 10%.
Then why did you post that "E-3s, and maybe E-4s, are probable are in the 0% tax bracket"?
"Then why did you post that "E-3s, and maybe E-4s, are probable are in the 0% tax bracket"?[/quote]"
I should have wrote "Then why did you post that "E-3s, and maybe E-4s, pay no income taxes."
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Re: military pay grade does a traditional IRA make good sens

Post by SpaceCommander »

_james wrote:
SpaceCommander wrote: I'd max out your TSP before putting one penny in an IRA (traditional or Roth). The choice between traditional and Roth will depend on your individual tax situation. In sum: max TSP first. Then IRA; then taxable. Your pay grade has nothing to do with it.
What is the benefit of maxing TSP first? I have been maxing my Roth IRA and putting extra into my TSP after. I do not receive matching as I'm not a GS employee I'm active duty. Thanks in advance!
Given the fact that TSP funds are the lowest cost funds available, I see no advantage to putting money into an IRA before maxing out TSP. It used to be that Roths were only available in IRA's. Now that the TSP has a Roth option, I believe the first $17500.00 of your annual retirement savings should go there. Then to an IRA.

The benefit is that the TSP has the lowest cost funds available to the retirement saver. Lower than anything you can get in your IRA. Also, access to the G fund is a benefit (if that fits in your AA). If you get matching funds in your TSP, all the better. Personally, I get no match but I qualify for a military pension too, so I'm not complaining. I still max BOTH my TSP & IRA accounts annually. Hope that helps,
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Re: military pay grade does a traditional IRA make good sens

Post by retiredjg »

Rocket, I still think there is no reliable answer to your question. For example, apparently an E-? can have a different salary depending on years of service. Also, there might be tax deductions that would move a person into another tax bracket that other people at the same grade might not have. Married, single, kids, deductions, how many incomes the family has, also affect the tax bracket. And there is something about being in combat that I don't know the details of.

The point is that it does not boil down to just the pay grade alone. There are many factors involved.

However, working with the numbers you gave in your edit, there might be some general thoughts to consider. For 2013, for a single filer, the standard deduction is $6,100 and the personal exemption is $3,900 for a total of $10k. So every single filer could reduce taxable income by at least that much. So taxable incomes could be what is shown in blue below.

E-3 $18,192 $8,192
E-4 $28,836 $18,836
E-5 $36,768 $26,768
E-6 $43,800 $33,800

For 2013, using these numbers, the E-3 would be in the 10% bracket and the E-4, 5, and 6 would be in the 15% bracket.

My personal feeling is that people in the 10% and 15% bracket should probably be using Roth IRA/TSP as opposed to traditional IRA/TSP. I think this because I believe they would pay at least the same and possibly a higher percentage of tax if the money were to go into traditional and be taxed at withdrawal during retirement. This would be even more true if the person stays in the military long enough to get a pension.

There is a possible exception that comes to mind. There was a thread in the last couple of months that suggested that traditional might be better than Roth for some people because using traditional could get them into position to get the Saver's Credit on their taxes. Apparently, this would be a very nice benefit. You might find that thread using the search box.

I suppose there could be other reasons that people in the lower tax brackets might want to use traditional instead of Roth, but my guess is that most would benefit by using Roth IRA/TSP.

It is in the 25% tax bracket that I think most people without pensions should begin to prefer traditional over Roth. That is because there is a reasonable possibility that they will not pay a higher percentage of tax in retirement than now. First, many people drop a bracket at retirement. Even if a person does not drop into a lower bracket, all the money coming out of IRA/TSP may not be taxed at the person's tax bracket rate because some of this money will likely flow into the lower brackets. So even if tax rates increase, there is still a reasonable possibility that there is a benefit to using traditional now instead of Roth or at least there would be no harm from using traditional now instead of Roth.

Even in the 25% bracket, I like to see both traditional and Roth used (more traditional, less Roth) in order to give the person some tax-diversification.

For people with pensions, the best course is not as clear to me. I do lean more toward Roth for people with pensions. This is because the pension will tend to fill the lower tax brackets. Still, I think having both traditional and Roth, in the long run, is probably beneficial.

Back to your original question, it seems likely that a single E-7 would fall into the 25% bracket. If the E-7 uses traditional IRA/TSP and puts nothing into Roth, that person might end up in the 15% bracket as well. Hard to say which is best for this situation. Maybe some of both.
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Re: military pay grade does a traditional IRA make good sens

Post by _james »

SpaceCommander wrote:
_james wrote:
SpaceCommander wrote: I'd max out your TSP before putting one penny in an IRA (traditional or Roth). The choice between traditional and Roth will depend on your individual tax situation. In sum: max TSP first. Then IRA; then taxable. Your pay grade has nothing to do with it.
What is the benefit of maxing TSP first? I have been maxing my Roth IRA and putting extra into my TSP after. I do not receive matching as I'm not a GS employee I'm active duty. Thanks in advance!
Given the fact that TSP funds are the lowest cost funds available, I see no advantage to putting money into an IRA before maxing out TSP. It used to be that Roths were only available in IRA's. Now that the TSP has a Roth option, I believe the first $17500.00 of your annual retirement savings should go there. Then to an IRA.

The benefit is that the TSP has the lowest cost funds available to the retirement saver. Lower than anything you can get in your IRA. Also, access to the G fund is a benefit (if that fits in your AA). If you get matching funds in your TSP, all the better. Personally, I get no match but I qualify for a military pension too, so I'm not complaining. I still max BOTH my TSP & IRA accounts annually. Hope that helps,
Thanks for the information, I'll shoot you a PM I don't want to hijack the thread. I'm in the same boat as you, no matching but I'll receive a military pension.
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Re: military pay grade does a traditional IRA make good sens

Post by grabiner »

Another important issue for military is that most of them expect to leave the military and make higher salaries as civilians. If you will be in a 15% tax bracket your whole career, a traditional IRA/TSP may be as good as a Roth. But if you leave the military in a 15% tax bracket and become a civilian in a 25% tax bracket, you will want to use a traditional 401(k) as a civilian, and that makes it worth taking advantage of the Roth when you can do so at a lower tax cost.

A further advantage of the Roth for military is that many active-duty military do not pay state income tax and thus have no state tax deduction; military who are stationed in a no-tax state may choose to become residents there, and they are not required to change residency or pay non-resident tax when they are transferred to another state. When they leave the military and become civilians, they will pay state income tax unless they live in a no-tax state; civilians must pay tax to the state they work in (except for reciprocity with adjacent states, which does not eliminate taxes because only states with income taxes have reciprocity).
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Re: military pay grade does a traditional IRA make good sens

Post by TriNut »

grabiner wrote:A further advantage of the Roth for military is that many active-duty military do not pay state income tax and thus have no state tax deduction; military who are stationed in a no-tax state may choose to become residents there, and they are not required to change residency or pay non-resident tax when they are transferred to another state. When they leave the military and become civilians, they will pay state income tax unless they live in a no-tax state; civilians must pay tax to the state they work in (except for reciprocity with adjacent states, which does not eliminate taxes because only states with income taxes have reciprocity).
A small caveat to the military members not paying state income tax. If the member is stationed in the state they claim residency in then they do pay state income tax if the state has a tax. This may not be true for every state but is for the roughly 20 that I have researched for active duty members as a Volunteer Income Tax Assistance VITA member.
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Re: military pay grade does a traditional IRA make good sens

Post by Kernschatten »

rocket wrote:At what military pay grade does a traditional IRA or TSP become more beneficial than a Roth IRA or Roth TSP ???
There is no clear cut answer, but I think retiredjg summed up most of the points regarding this.

Another factor to consider is using a Trad IRA/TSP to increase tax return/earned income tax credit (EITC): http://www.bogleheads.org/forum/viewtop ... 3#p1595003

grabiner wrote:A further advantage of the Roth for military is that many active-duty military do not pay state income tax and thus have no state tax deduction; military who are stationed in a no-tax state may choose to become residents there, and they are not required to change residency or pay non-resident tax when they are transferred to another state. When they leave the military and become civilians, they will pay state income tax unless they live in a no-tax state; civilians must pay tax to the state they work in (except for reciprocity with adjacent states, which does not eliminate taxes because only states with income taxes have reciprocity).
Be careful with this.

Some servicemembers have been burned by changing their Residency/Domicile to save on taxes.

If you desire to establish a new state residence you may be required to show intent by taking certain actions such as registering to vote in the new state, owning residential property, registering a car, and/or obtaining a driver’s license. A servicemember cannot change his/her “legal residence” solely by changing the name of the state of withholding at the Finance Office. Doing so could make the servicemember liable for taxes to his/her proper state of legal residence. You have the burden of proving you are no longer a resident of the taxing state. If you cannot prove your domicile has changed, the taxing state may find you liable for income and/or property taxes, including interest and penalties.

Changing state of residency to a state you are currently stationed in, as grabiner stated, is the most risk-free change.
TriNut wrote:A small caveat to the military members not paying state income tax. If the member is stationed in the state they claim residency in then they do pay state income tax if the state has a tax. This may not be true for every state but is for the roughly 20 that I have researched for active duty members as a Volunteer Income Tax Assistance VITA member.
The line I bolded is unclear to me what you are saying. While it is true, a servicemember that claims residency to a state that taxes military can be taxed no matter what state or country they are stationed in.

The Service Members' Civil Relief Act has granted service members the ability to retain their state of residency for state tax purposes rather than the state where they are stationed. Another bill recently extended the same to spouses.
For example, if I am stationed in NC, but grew up in and vote in RI then I am entitled to claim RI and not file state income taxes for military wages in NC. I am, however, paying taxes to RI even though I haven't been there in a decade.
Now, if I'm stationed in NC, but changed my residency to TX then I may not have to file any state tax. If I have a separate job in addition to my military pay, I may be taxed by NC through nonresident filing.

These are great break-downs of each State's treatment of military taxation, whether Active or Guard.
http://www.military.com/money/personal- ... ation.html
http://usmilitary.about.com/od/taxes/l/blstatetax.htm
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Re: military pay grade does a traditional IRA make good sens

Post by rj49 »

Since future tax policies and rates are unknown, I choose to hedge my bets. I maxed out TSP, but then I had a VG IRA for long-term growth, and when I retired I simply transferred it to the TSP G fund, which is a way to get around the TSP contribution limits.
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Re: military pay grade does a traditional IRA make good sens

Post by TriNut »

TriNut wrote:A small caveat to the military members not paying state income tax. If the member is stationed in the state they claim residency in then they do pay state income tax if the state has a tax. This may not be true for every state but is for the roughly 20 that I have researched for active duty members as a Volunteer Income Tax Assistance VITA member.
The line I bolded is unclear to me what you are saying. While it is true, a servicemember that claims residency to a state that taxes military can be taxed no matter what state or country they are stationed in.

These are great break-downs of each State's treatment of military taxation, whether Active or Guard.
http://www.military.com/money/personal- ... ation.html
http://usmilitary.about.com/od/taxes/l/blstatetax.htm[/quote]


I agree I was not real clear with what I was trying to say. As an example when I was a resident of Ohio my pay was not subject to tax while stationed outside the state but if I was stationed in Ohio then my military pay would be taxable. I have found quite a few states that treat military pay in the same manner, taxing only when stationed in the state.
NYBoglehead
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Re: military pay grade does a traditional IRA make good sens

Post by NYBoglehead »

Former Marine here. In regards to comments about maxing out TSP before Roth IRAs, that most certainly is NOT the way to go. Unless you are talking about Roth TSP. For starters, the overwhelming majority of the uniformed services are the lower enlisted ranks (E1-E4). Keep in mind that the Roth TSP was not always an option. When I was in my effective tax rate was very low because the salaries are fairly modest and time spent in a combat zone is not taxable for income tax purposes. So why would it make sense to defer taxes until later when you might not ever be in a lower bracket?

Everyone needs to plug their own numbers of course. Senior officers (a very small % of the military) might be better off going with the traditional TSP but obviously everyone's circumstances are different. Depending on their marital status and if the spouse works/has worked the advice should not be so generic.
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SpaceCommander
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Re: military pay grade does a traditional IRA make good sens

Post by SpaceCommander »

NYBoglehead wrote:Former Marine here. In regards to comments about maxing out TSP before Roth IRAs, that most certainly is NOT the way to go. Unless you are talking about Roth TSP.
After saying this is NOT the way to go, you now say that it is. While maxing a Roth IRA before contributing to the TSP may have been prudent under certain circumstances in the past, that is no longer the case. The TSP offers the lowest cost funds available, and now has a Roth option. So now there is no reason not to max out TSP before contributing to an IRA.

So how is maxing out TSP before Roth IRA's "most certainly" NOT the way to go? :confused
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NYBoglehead
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Re: military pay grade does a traditional IRA make good sens

Post by NYBoglehead »

^Max out the Roth TSP. I meant to say go for the Roth option when in the lower brackets. Until the last year or so there was no Roth option, so to contribute to the traditional TSP while in a low bracket before going with a Roth IRA wouldn't have made sense.
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