Content Manager posted on October 01, 2009 00:10
October 2009 Navy Magazine
by CAPT Tom McAtee
Qualifying Active Duty for Reserve Early Retirement
Confusion still exists regarding the types of active duty that qualifies for early retirement and whether or not the active duty must be in consecutive day periods. All types of active duty qualifies for eligibility for early retirement, meaning AT, ADT, ADSW, and Mobilization orders involuntary or voluntary. The law specifies each aggregate 90 days qualify. Aggregate does not mean continuous. A 90-day period can be the summation of AT, ADT, ADSW or recall orders.
Pay Raise of 3.4% on Track But Retiree COLA Doubtful for 2010
The military active duty pay raise is slated for 3.4% to be effective 1 January 2010. However, military retirees, accustomed to annual COLA increases, will most likely see no COLA increase for 2010. The CPI used for calculating federal retiree COLA is tracking in the negative figures so far and not likely to change. After receiving a 5.8% increase in 2009, a zero COLA for 2010 will be a disappointment to military retirees on a fixed income.
How Military Members Can Benefit from a Roth
Is a Roth IRA a good retirement plan for a 19-year-old Sailor? It definitely is if you have the discipline to contribute to your future. Instead of getting a tax break for contributions now, with a Roth, you can withdraw the money (including earnings) tax-free after age 591⁄2. This future tax break benefits someone whose taxable income is low now but will likely rise — such as a young person in the military who will earn a higher salary and no longer receive a tax-free housing allowance after he/she leaves the military. Another perk: You can withdraw your Roth IRA contributions at any time tax and penalty-free for any reason. You can contribute up to $5,000 to a Roth IRA in 2009 (people who are 50 or older can contribute $6,000) as long as your adjusted gross income is $105,000 or less, or $166,000 or less if you are married filing jointly (you can make a partial contribution if you earn $120,000 or less; or $176,000 or less if married filing jointly).
You must have earned income to qualify for a Roth IRA; and combat-zone pay, which is tax-free, counts. If you earn income but your spouse doesn’t, you can contribute $5,000 to an IRA in his or her name, too. You can open a Roth IRA with a brokerage firm, mutual fund company, credit union, or bank. When selecting an IRA administrator, look for low fees and a range of investment choices. If you have 20-to-30 years until you plan to withdraw money in retirement (or even longer for a 19-yearold), it’s usually best to invest the money in a diversified portfolio of mutual funds, especially stock funds that can grow significantly over the long run. You can invest in both the Thrift Savings Plan and a Roth IRA in the same year. In 2009, the maximum contribution to a TSP is $16,500. Plus, if you’re deployed, you can contribute all of your tax-exempt combat-zone pay, as long as your total TSP contributions for the year don’t exceed $49,000.
Even if you can afford to invest only a little bit now, it may be a good idea to contribute to both a Roth IRA and the Thrift Savings Plan; you’ll benefit from both types of tax advantages and start a savings habit early.