Tag Archives: militaryfamiliespersonalfinance

Renting a Home as an Absentee Landlord

By Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension

Should a military family planning to move to their next duty station sell their home or keep it as a rental property? Like many financial planning questions, the best answer is “it depends.” There are many factors to consider when a service member is deciding whether to sell a home or turn it into rental property. Here are some key questions for Personal Financial Management Program (PFMP)staff to ask:

  • What is the housing market like in the area?
  • Are houses selling quickly or staying on the market for months (or years)?
  • Is there a strong rental market?
  • Is the service member prepared to be a long-distance landlord or able to afford to hire a local property manager to manage the property?
  • Can enough rent be charged to cover both the mortgage and any property management fees?
  • How much money is currently owed on the mortgage?
  • Does the service member owe more than the house is currently valued at?
  • Will a property insurance company insure the residence when it is vacant (some companies will not)?
  • Most importantly, can a service member afford to carry two homes if the first home can’t be rented or there are sporadic vacancies when tenants move?

    Photo by james.thompson
    Photo by james.thompson

These are just a few factors that service members must consider when deciding whether to sell or rent. For more information, see cbsnews.com/8301-505146_162-57443734/if-you-cant-sell-your-house-should-you-rent-it/

If service members decide to become absentee landlords, they should expect to pay a property management fee of around 10% of the cost of the monthly rent to the agency. They may also have to pay a set-up fee to open an account and keep a specific amount of money in the account with the property manager for emergency repairs costing a minimal amount, such as fixing a leaky sink. Major repairs, such as replacing a refrigerator or other appliance, should require authorization from the property owners.

Absentee landlords should consider purchasing a home warranty on the house for major components that could break (e.g., air conditioning). For a rental property, the cost is tax-deductible. Another recommended step is hiring a lawyer to review all rental agreement contracts.

Where can military families find a property manager who caters to rental units for military families? They can start with the Realtor who sold them the house. A good Realtor in a community with a large population of military families will have a network that includes local property managers who specialize in marketing to military families. The service member can also ask around among military friends and colleagues. Chances are someone will be able to recommend a property manager in the area who caters to military families.

Service members should interview at least three property managers before they decide which one to use. Cases have been reported of service members paying management companies only to find out later that they only did one drive-by in a year and/or never even walked into the house to check on the inside. Military families may also want to check out the websites militarybyowner.com and ahrn.com (Automated Housing Referral Network). They cater to service members who want to rent or sell a house to other service members.

This post was published on the Military Families Learning Network blog on March 30, 2015.

 

Income Tax Tips for Military Families

By Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension 

At the height of income tax filing season, it is appropriate to examine special tax benefits for military families. Military personnel and their families face unique life challenges with their duties, expenses, and transitions and, because of this, the following special tax benefits are available:

https://creativecommons.org/licenses/by/2.0/legalcode
U.S. Army photos by Pfc. Ma, Jae-sang
  • Moving Expenses: A service member on active duty who moves because of a permanent change of station (PCS) may be able to deduct unreimbursed moving expenses.
  • Combat Pay: If a service member serves in a combat zone as an enlisted person or warrant officer for any part of a month, all military pay received for service during that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received. Service members can also elect to include nontaxable combat pay in their “earned income” for purposes of claiming the Earned Income Tax Credit.
  • Extension of Deadlines: The deadline for filing tax returns, paying taxes, filing claims for a refund, and taking other actions with the Internal Revenue Service is automatically extended for qualifying members of the military.
  • Joint Returns: Generally, joint income tax returns must be signed by both spouses. However, when one spouse is unavailable due to military duty, a power of attorney may be used to file a joint return.
  • Travel to Reserve Duty: Members of the U.S. Armed Forces Reserves can deduct unreimbursed travel expenses for traveling more than 100 miles away from home to perform Reserves duties.
  • ROTC Students: Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay—such as pay received during summer advanced camp—is taxable.
  • Transitioning Back to Civilian Life: Service members may be able to deduct some costs incurred while looking for a new job. Expenses may include travel, resume preparation, and agency fees. Moving expenses may be deductible if closely related to the start of work at a new job location and certain tests are met.
  • Tax Assistance: Most military installations offer free income tax filing and preparation assistance during and/or after the tax filing season.

IRS Publication 3: The Armed Forces’ Tax Guide is an excellent resource because it summarizes many important military-related tax topics. Publication 3 can be downloaded from irs.gov or may be ordered by calling 1-800-TAX-FORM (800-829-3676). Another helpful resource is this list of federal income tax brackets. When someone knows their tax bracket, they can calculate the benefit of taking actions such as making charitable gifts and saving for retirement. For example, a $4,000 Thrift Savings Plan (TSP) contribution will save $1,000 in taxes for someone in the 25% tax bracket ($4,000 x .25).

This post was published on the Military Families Learning Network blog on March 2, 2015.

Encouraging Service Members to Save for Retirement

By Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension

More than 80% of service members never reach the 20-year mark to qualify for retired pay. That is why it is important for them to “hedge their bets” by contributing as much as they possibly can to the Thrift Savings Plan (TSP). Otherwise, they run the risk of serving in the military for a number of years and having absolutely no retirement savings to show for their service when they leave.

Service members can contribute a portion of their pay to the TSP while they are on active duty and can fund an individual retirement account (IRA)—a traditional IRA and/or Roth IRA—as well. A retirement planning calculator available at the Ballpark Estimate website  can help service members determine how much they need to save for retirement.

Financial experts agree that people who start saving money for retirement at a young age will see the largest growth in their savings. Service members can start contributing to the TSP when they begin their career. The TSP is savings they can take with them in the likely event they don’t receive a pension. The TSP.gov site demonstrates the value of starting TSP contributions as soon as possible.

From tsp.gov
From tsp.gov

TSP fund options are among some of the lowest-cost investments available anywhere. TSP fund expenses average 0.025% or 2.5 basis points (a basis point is 1/100th of 1% or 0.01%). Stated another way, TSP expenses are about 25 cents for every $1,000 invested. If someone had a $100,000 TSP portfolio, he or she would pay only $25 a year in investment management expenses. Learn more here. The TSP also offers many helpful financial planning tools.

A Roth Thrift Saving Plan (TSP) account is a good option for many service members. With a Roth TSP, participants invest after-tax dollars (i.e., money that has already been taxed) that cannot be taxed again upon withdrawal in retirement. While plan participants don’t receive an immediate tax write-off for the amount of their contribution, they receive tax-free earnings after age 59½ if their account has been open at least five years. Also, unlike Roth IRAs, there are no maximum income limits for Roth TSP participation.

Roth TSP accounts are especially attractive for young service members because they have four to five decades of tax-free investment growth ahead of them. In addition, they are likely to be in a lower tax bracket (e.g., 15% marginal tax bracket) currently than they will be later in life (e.g., 28% tax bracket), so a current tax will have less impact than a future one. Learn more here. For a list of federal marginal tax brackets, see http://njaes.rutgers.edu/money/taxinfo/.

How do you convince service members to save for retirement?  Show them the money! Provide a compelling illustration of how small amounts of money grow over time. Research indicates that people often save more when they fully understand how savings can grow with compound interest. Here’s an example from , a publication for military families. If someone saves $300 every paycheck, this lowers their take-home pay by $225 in the 25% tax bracket ($300 minus the $75 tax benefit). Do that twice a month and you’ll save $7,200 a year ($300 x 24 paydays). Assuming an 8% average investment return over 30 years from age 25 to 55, a service member would save more than $900,000.

This post was published on the Military Families Learning Network blog on February 9, 2015.

Paying Off Holiday Credit Card Bills

By Sharon Hahn Darlin
By Sharon Hahn Darlin

By Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension

It’s three weeks since Christmas and credit card bills with holiday expenses (gifts, travel, etc.) are starting to arrive.  When there isn’t enough cash available to pay them in full but more than the required minimum payments, questions like this arise:  Should service members pay more than the minimum on credit cards with the smallest balance or on those carrying the highest interest rates?  The answer is “it depends.”

Some experts believe it is cost-efficient to pay off debts with the highest interest rates, while others believe it is emotionally satisfying and motivating to pay off those with the smallest balance. Regardless of which decision is made, start clients off by making a list of all of their creditors and debts (e.g., Sears credit card). Next write down the corresponding balance, APR (interest rate), and minimum monthly payment for each debt.

Next, it’s time for Power Pay. Developed by Utah State University Cooperative Extension, PowerPay assumes that users are paying at least the required minimum payment to each of their creditors and can continue to pay the same total monthly amount until all of existing debt balances are down to zero. The program also assumes that no new debts will be added during the duration of the debt repayment plan. If they are, they will not be included in the debt repayment calculation.

To use PowerPay, log in with a user name and password and enter the following information:

  •  Names of creditors
  • Outstanding balance for each debt
  • Annual percentage rate (APR) on each debt
  • Monthly payment for each debt

Once this information is entered, PowerPay users can print out a calendar that shows how much to pay each creditor monthly. When a debt gets paid off, its previous monthly payment is added to the payment sent to a remaining creditor. The analysis shows when each debt will end and the time and interest saved by following the PowerPay program.

Generally, users save the most debt repayment time and interest with PowerPay by adding extra payment amounts to debts with the highest APRs. This might include credit cards with high penalty interest rates and high-interest rate department store credit cards which often have interest rates in the 21% to 28% range.

For further assistance with debt repayment, military families can contact a non-profit credit counseling agency. Most credit counseling is done by telephone and secure Web sites so driving distance to an agency need not be a problem. Counseling agencies can assist clients with budgeting and enroll them in a debt management plan (DMP) where one monthly payment is made to the agency and proportionately distributed among a client’s creditors. With some DMPs, creditors may be willing to accept lower payments and/or reduce interest rates and fees charged. To find a local credit counseling agency, visit http://www.nfcc.org/FirstStep/firststep_01.cfm.

This post was published on the Military Families Learning Network blog on January 12, 2015.

Year-End Tax Planning Strategies

By Molly C. Herndon

Social Media Specialist 

The temptation to put off organizing financial records and updating accounts until the new year may be overwhelming this time of year. Family get-togethers and the holidays stretch our time and our finances. However, planning now can mean a better outcome when filing your taxes next Spring.

Numbers and Finance  by reynermedia. Licensed Creative Commons CC BY 2.0.
Numbers and Finance by reynermedia. Licensed Creative Commons CC BY 2.0.

In our December 9 webinar, Year-End Tax Planning Strategies, Dr. Barbara O’Neill will discuss ways to plan ahead to increase deductions and be better prepared for tax laws that may impact your wallet. This 90-minute webinar begins at 11 a.m. ET and is worth 1.5 CEUs for AFC-credentialed participants.

The Personal Finance team has presented on the topic of taxes twice before. Earlier this year, Dr. Michael Gutter presented Tax Planning Updates for Members of the Military . This webinar focused on tax laws that affect military members, as well as unique issues related to combat pay and basic tax calculation. Watch the recording here:

In 2012, we presented Income Tax Filing Issues for Members of the Armed Forces. This 90-minute webinar teased apart the dense information that pertains to military members when filing returns. Watch the recording of this session here:

To join the upcoming December 9 session and for more information, click here.

This post was published on the Military Families Learning Network blog on November 25, 2014.

2014: A Financial Review

By Molly C. Herndon
Social Media Specialist 

What hot button topics in personal finance really got you going this year? Are you concerned about the Affordable Care Act? Data hacking? Stock market highs and lows? These topics and more will be covered in our November 25 webinar with Dr. Barbara O’Neill.

wsj.com
Image from wsj.com

We invite personal finance managers and educators to join this 90-minute webinar to learn more and share their own insights on the hot finance issues of 2014 at 11 a.m. on Tuesday, Nov. 25. This 90-minute webinar is worth 1.5 CEUs  for AFC-credentialed participants.

This “Financial Year in Review” webinar will cover updates on financial topics that were newsworthy this year, as well as preview some of the issues that will be on trend in 2015, including:

  • Changes in tax laws
  • Governmental relation changes
  • Financial products and services

This online learning opportunity will be presented on the Department of Defense DCO system and requires security certificate installation. Alternatively, DCO apps are available for many devices and the session will also stream on Ustream. For more information on how to join, click here.

For resources related to this webinar and more information about our speaker, Dr. Barbara O’Neill, visit the event’s Learn page.

This post was published on the Military Families Learning Network blog on November 3, 2014.

Personal Finance Webinar: How to Read a Mutual Fund Prospectus

By Molly C. Herndon

Military families know the importance of saving money, but do they understand the options available for maximizing savings? Along with taking advantage of Thrift Savings Plans (TSPs) and Roth IRA retirement savings options, military families could also be using mutual funds as a savings tool.

"Reading" by Sebastien Wiertz.  Creative Commons.
“Reading” by Sebastien Wiertz. Creative Commons.

In the Tuesday, October 21 webinar, Dr. Michael Gutter will discuss mutual funds in detail and will explain the fees, performance measures, and characteristics of mutual funds that are highlighted in a mutual fund prospectus. Dr. Gutter will also discuss some of the tools and resources available for researching mutual funds. This 90-minute webinar will enable financial educators who attend to work with military families who are interested in using mutual funds as a long-term savings option.

This webinar is approved for 1.5 Continuing Education Units for AFC-credentialed participants through AFCPE. To join the webinar and to view resources, including the presentation slides, click here.

This post was published on the Military Families Learning Network blog on October 14, 2014.

Financial Planning for the Second Half of Life

By Molly C. Herndon
Social Media Specialist

On September 23, Dr. Barbara O’Neill will present Financial Planning for the Second Half of Life. More than a webinar about retirement planning, this 90-minute session will focus on:

  • Common financial errors of older adults
  • Statistics about older adult finances
  • Common later life financial characteristics and required decisions
  • 15 key later life financial planning topics (e.g., creating a retirement “paycheck,” required minimum distributions, untitled property transfers, and leaving a legacy)
  • Personal finance resources for older adults and financial practitioners
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Photo by Jon Rawlinson. Licensed Creative Commons. 

This webinar will allow participants to engage in an interactive discussion of the realities of retirement finances, including selecting and paying for health care benefits, managing asset withdrawals, and creating workable retirement planning strategies for older adult clients.

This webinar is approved for 1.5 CEUs for AFC-credentialed participants. To join, review the slides and for more information about the speaker, click here. 

 

This post was published on the Military Families Learning Network blog on September 9, 2014.

 

The Value of Research for Financial Professionals

By Molly C. Herndon

Social Media Strategist 

For financial professionals working with clients in the field, economic research may seem abstract and non-applicable to their daily practice. Our August 12 webinar, Cliffs Notes from the Journal of Financial Planning & Counseling will highlight some of the more relevant articles from the journal and discuss the practical implications and impacts of the research.

Reading by Pedro Ribeiro Simões is licensed Creative Commons. https://creativecommons.org/licenses/by/2.0/legalcode
Reading by Pedro Ribeiro Simões is licensed Creative Commons.

Indeed, measuring outcomes is a significant way we all benefit from academic economic research. The evaluation of the outcomes of projects, programs, and initiatives encourages the improvement of programs to better reach and connect with their audiences. Thus, financial professionals have better access to programs to continue their own education, and a richer well of knowledge to share with clients.

Of course, financial professionals benefit from consuming research as well. By reading journals, financial professionals stay on top of current practices, trends, and can help develop programs that meet the needs of their clients by incorporating empirical evidence.

So make plans to go through some research briefs with Dr. Barbara O’Neill on Tuesday, August 12 at 11 a.m. ET. She will discuss not only the findings of various economic studies, but also the practical application of these findings. More information about this 90-minute webinar is available here. 

This post was published on the Military Families Learning Network blog on August 8, 2014.

Making Positive Changes for Health and Finances

By Katie Stamper
Project Manager, Child and Family Learning NetworkeXtension-CFLN logo wReg - 2

Health and finances: two things that keep people up at night. Do I have enough money saved? Am I ready for retirement? How do I control my blood pressure? These worry-filled questions leave you wanting answers but where do you turn for credible answers and information? Worry no more! Dr. Barbara O’Neill from Rutgers University will explain the Small Steps to Health and Wealth™ initiative during a webinar on July 29, 2014 10 a.m. CT, and discuss 25 behavior changes that can improve an individual’s health and finances.

SSHW was developed because societal problems have been widely reported in recent years including an increasing incidence of diabetes, overweight, and obesity, low household savings, high household debt levels, and bankruptcy filings. The SSHW program includes 25 behavior change strategies that people can adopt to address these concerns. Each involves taking small positive steps that people can put into practice on a daily basis.

The webinar presentation is a joint collaboration between the Child and Family Learning Network and the Military Families Learning Network. This 90 minute webinar will be filled with research-based, credible information that can jumpstart your finances and health. Invest the time to attend so you can make the greatest investment of all—YOU!!! To access the webinar, please visit https://learn.extension.org/events/1625

Reference:

Small Steps to Health and Wealth™, NRAES-182, Retrieved from http://njaes.rutgers.edu/sshw/

This post was published on the Military Families Learning Network blog on July 9, 2014.