Deployment - Tax Free

**jenn_jenn** · 02-06-2018, 06:50 PM

Speaking as a MILSO, it seems people forget to count in the expenses that deployment can bring. There�s a huge opportunity to save but I think it�s important to have a realistic view of your expenses during deployment. This may already be on your radar but just a few things to consider: .

* storage fees
* will you be doing any personal travel while deployed?
* will you be supplementing your gear? (ie. we just dropped $500 at REI for extra warm camping gear bc what was issued to him was not nearly sufficient enough and another $400 for some tablet needed for some pilot software. this might by a marine specific thing but we�re continuously spending money on military �stuff�)
* moving expenses when you return
* i�d recommend budgeting a little extra for your family than �normal�. you may find the family eats out a little more because your wife is now a single parent for a while or she may need to pay for car repairs that you'd usually fix. things like this

Also, can you drop the auto loan while you�re gone? I don�t see the point in paying $500/mo for a car that�s not being used. Sell it and buy a different one when you come back. (This is assuming the car loan is for your car and not you wife�s).

Best of luck! And thank you to you and your family for your service and sacrifice for our country.

**dizbetam** · 02-06-2018, 07:31 PM

Thank you - Great Advice

Thank you Jen for the great advice.

Thats one of the major issues I currently have when I fell off the wagon is that I take on full responsibility for our finances (not by choice). And with that full responsibility I have NOT been disciplined enough to budget. The only good budget choice that I feel that I have done right is give my wife a $1,000 (automatic draft) living expense per month for her to pay for kid activities, food, YMCA, etc... Regular bills are paid by our shared account.

So in essence I have not made a tight locked budget since I been traveling quite a bit for work in preparation for deployment and I have not been tracking my expenses as I should be. Hoping to get back on track and use this deployment as an excuse to do so.

I will be supplementing my gear (I did not budget for that) - the military does not do a great job when we go to the field and not shower for days on end. And we are expected to at least maintain some minimal level of hygiene.

I am hoping the moving expenses upon my return will be PCS funded but that will be determined at a later date.

The Auto loan is the wife's car, we upgraded to a SUV for the kids. My car is paid off and if I sold it, its marked at around $15,000. My wife wants me to keep it because if we sold it, I would still need to buy another car upon my return. I want to sell it but she reminds me often that I travel often and I need a reliable car upon my return. I am wanting to sell it and buy a cheap $2k-$3k car that will last me for 5 years or so.

**jenn_jenn** · 02-06-2018, 07:58 PM

I�d check the estimated decpreciation on the car for the year you�re gone. If you have the time and energy, it may be worth selling and getting something else when you�re back. Personally, I�d rather have a $5k car and put that extra $10k towards paying off the student loan debt.

Just one more tip, since you mentioned not having time to budget. Mint has a wonderful app that you can link to your accounts and it does the tracking for you. It helps give you a realistic view of your spending which can then help you identify a realistic budget. You may be surprised at your spending breakdown by category. I used to spend way too much time tracking my expenses in an Excel spreadsheet, now I don�t have to because Mint does it for me.

**disneysteve** · 02-07-2018, 07:10 AM

Originally posted by dizbetam View Post

Car loan: $33,000 - $581 / month - 2.9% interest - 72 month loan

Welcome to the site and thank you for your service.

This is the first thing that jumped out at me. I would ditch this car as soon as I could.

Rules of thumb for car-buying is for your payment to not exceed 10% of your monthly income for no more than 36 months. Nobody should ever take a 6-year car loan with the possible exception of when it's at 0%.

In the interest of full disclosure, I did take a 6-year loan when I bought my car but I paid it off in 12 months. The rate was the same regardless of the term so they just automatically gave me the longest term. The same thing happened when we bought my wife's car, which we paid off in just under 3 years. So the 6-year loan is okay as long as you are paying on it as if it were a 3-year loan but I'm assuming you are not.

**creditcardfree** · 02-07-2018, 11:09 AM

Military spouse here who managed all the finances while my husband was deployed, so I understand your scenario. It is a fantastic time to make the tax free and extra income count!

I think you overbought on your car as well...but if it's something you would keep and drive long term it may not be all bad.

Do you have an emergency fund?
Are you saving for retirement?
Do you want to continue to be a landlord? (I know in some military towns houses are hard to sell, and easier to rent) You are losing money on one, but making money on the other.
Three of your debts could be sold to eliminate most if not all of those debts. How would it feel to have a clean slate? If you were to start over with a clean slate would you buy these same two houses for investment purposes and the car?
Beside paying off debt what goals do you have financially? Keeping rental homes or having high end cars may hold you back from your goals. It's good to know why you are doing what you are doing.

How much of your income do you expect you can put to debt each month?

If you did sell your vehicle, how much could you get for it? Would you be able to cover the full loan?

Also you may end up being eligible for the Earned Income Tax Credit for 2018 taxes because deployment pay does not need to be counted as income when figuring it. It happened to us, and seems strange since you'll be earning more, but you will be eligible since it appears you have two kids and would be under the income threshold.

**dizbetam** · 02-07-2018, 02:39 PM

Debt Goals

Emergency Fund

- I don't have one - I have $12,000 in my checking account, does that count?

Are you saving for retirement?

I am saving for retirement but not as much as other people. I currently have $45,000 retirement assets diversified in different areas. I put in $150 / month from my paycheck. I am planning on my military pension making up a majority of my retirement if not fully replace my income.

Do you want to continue to be a landlord? (I know in some military towns houses are hard to sell, and easier to rent)

I don't mind being a landlord and have people we know take care of our houses if issues do arise. I know it looks like I am losing money but I look at it differently. The money I pay in mortgage goes into Equity. Its almost like putting money into a retirement account but different as well. I think the difference is, we don't see the results of our investments like we do with the stock market.

Mortgage 1 - $678/ month - $458 Principal / $220 Interest per month. So I am putting away $458 into my retirement account

Mortgage 2 - $2140 / Month - $1120 Principal - $450 Interest - The rest goes into Tax or Insurance. So I am putting in $1120 into my retirement account every month.

Three of your debts could be sold to eliminate most if not all of those debts. How would it feel to have a clean slate?

I don't know if I can answer that, the houses were not intended originally for investment property but now it seems like I stumbbled into one method of a retirement vehicle. I do need an exit strategy... as I will need to liquidate before I retire. Not being local to the house is taking a huge risk of the unexpected. But you make a good point in possibly looking at liquidating and utilizing a different retirement vehicle.

Beside paying off debt what goals do you have financially? Keeping rental homes or having high end cars may hold you back from your goals. It's good to know why you are doing what you are doing.

I am 33 now, and I finally realized how financially painful high end cars are and are not worth it. After reading the cliff notes of rich dad / poor dad, I started seeing how having some type of business can assist me to write off in my taxes on stuff (Car, computer, business office, some utilities, etc...). I am open to any suggestions or advice if there are other perspectives.

How much of your income do you expect you can put to debt each month?

I think a little over half of my income can be put into debt, so $3500 / month, during deployment. Post deployment, I would say only $1500 and thats being conservative. I am also expected to getting promoted during deployment (another $1,000 / month) but I am not counting my chickens before they hatch.

If you did sell your vehicle, how much could you get for it? Would you be able to cover the full loan?

KBB says $29000 - $32000. So low end $29,000. So I would end up paying $4000 to pay off my loan.

**kork13** · 02-08-2018, 11:37 AM

I'm in the military myself, and have deployed 3 times. Financially, it can be a fantastic opportunity to pay off debts, and an even better opportunity to save money for retirement (tax free money goes into Roth IRA/TSP, money grows for 30+ years, then comes out with no taxes on the either the principle or the growth).

The biggest question for you right now is your wife's thoughts. Is she on board with using your deployment to knock out as much of your debt as possible? Because if not, this entire thing is a non-starter. I ask because your entire post talks alot about "I" but not much about "we". I've had countless folks whose spouses used shopping & eating out & traveling to make up for the absence of the deployed service member, which hamstrung their efforts to save/pay off debts. If she's not fully supportive & eager to knock out your debts, you both need to have a serious discussion about nailing down your shared priorities. Bottom line: both of you have to be totally in synch on what your priorities are going to be while you're deployed.

As far as taxes go.... Definitely plan for the EITC on your taxes. Without looking at the details, I can assure you that a family of 4 with taxable income of $35k definitely qualifies for the EITC (refundable tax credit). Likewise, if it still exists, be sure to contribute to a Roth IRA to get the Saver's credit (another $1000 refundable tax credit).

Otherwise, the advice is just like you'd get in any other debt payoff situation:
1) Keep your family's expenses as low as practical
2) Ensure you have at least a basic emergency fund
3) Contribute the minimum required to earn the full retirement match in your TSP (if you're on the new Blended Retirement System)
4) Max out a Roth IRA for you & your wife
5) Pay the minimums on all of your debts, then send all available cash to your highest-rate debt (in this case, the student loans). With $66k in student loans, this will likely take most of your deployment to do. Still, how awesome will it be to have those totally gone?!?
6) Once that debt is paid off, roll all of your available cash into the next-highest rate debt (mortgage 1). This advice is somewhat abnormal (paying off a mortgage before a car loan), but with you in such a low tax bracket, even your effective rate (after a tax deduction of the mortgage interest) is still higher than the car loan. So I'd personally attack the mortgage before the car loan. This step will definitely take you through the rest of your deployment, and then some.
7) After you return, keep at it. Knock out the car loan. Mortgage 2 isn't a bad rate at all, so I wouldn't worry about it too much.

Last big question.... Do you already have the down payment ready for buying house #3? What's the plan for getting there? If you tell us "$0 down!", let me stop you right there. You can only have 1 VA loan at a time, and since mortgage 2 will still be around, you're stuck with a conventional loan. If you go for a conventional loan with less than a 20% down payment, you get hit with PMI, which is almost literally money flushed down the toilet. So if you don't have a down payment ready for the next house yet, then you can skip steps 6 & 7, and go straight for saving everything possible for your down payment. Still get the student loans paid off, because 5+% interest is onerous. But as soon as that's done, you have to focus on being ready for your next move/home purchase.

One more thing... Be safe on your deployment, wherever that may be, and have fun whenever you're able to. Deployed life is stressful, so take every opportunity you can to unwind & enjoy yourself. Stay in touch with your family. Ensure you've got your will updated & life insurance in place (because you never know what may happen). Good luck, and God speed.

**creditcardfree** · 02-08-2018, 01:18 PM

Originally posted by kork13 View Post

I'm in the military myself, and have deployed 3 times. Financially, it can be a fantastic opportunity to pay off debts, and an even better opportunity to save money for retirement (tax free money goes into Roth IRA/TSP, money grows for 30+ years, then comes out with no taxes on the either the principle or the growth).

The biggest question for you right now is your wife's thoughts. Is she on board with using your deployment to knock out as much of your debt as possible? Because if not, this entire thing is a non-starter. I ask because your entire post talks alot about "I" but not much about "we". I've had countless folks whose spouses used shopping & eating out & traveling to make up for the absence of the deployed service member, which hamstrung their efforts to save/pay off debts. If she's not fully supportive & eager to knock out your debts, you both need to have a serious discussion about nailing down your shared priorities. Bottom line: both of you have to be totally in synch on what your priorities are going to be while you're deployed.

As far as taxes go.... Definitely plan for the EITC on your taxes. Without looking at the details, I can assure you that a family of 4 with taxable income of $35k definitely qualifies for the EITC (refundable tax credit). Likewise, if it still exists, be sure to contribute to a Roth IRA to get the Saver's credit (another $1000 refundable tax credit).

Otherwise, the advice is just like you'd get in any other debt payoff situation:
1) Keep your family's expenses as low as practical
2) Ensure you have at least a basic emergency fund
3) Contribute the minimum required to earn the full retirement match in your TSP (if you're on the new Blended Retirement System)
4) Max out a Roth IRA for you & your wife
5) Pay the minimums on all of your debts, then send all available cash to your highest-rate debt (in this case, the student loans). With $66k in student loans, this will likely take most of your deployment to do. Still, how awesome will it be to have those totally gone?!?
6) Once that debt is paid off, roll all of your available cash into the next-highest rate debt (mortgage 1). This advice is somewhat abnormal (paying off a mortgage before a car loan), but with you in such a low tax bracket, even your effective rate (after a tax deduction of the mortgage interest) is still higher than the car loan. So I'd personally attack the mortgage before the car loan. This step will definitely take you through the rest of your deployment, and then some.
7) After you return, keep at it. Knock out the car loan. Mortgage 2 isn't a bad rate at all, so I wouldn't worry about it too much.

Last big question.... Do you already have the down payment ready for buying house #3? What's the plan for getting there? If you tell us "$0 down!", let me stop you right there. You can only have 1 VA loan at a time, and since mortgage 2 will still be around, you're stuck with a conventional loan. If you go for a conventional loan with less than a 20% down payment, you get hit with PMI, which is almost literally money flushed down the toilet. So if you don't have a down payment ready for the next house yet, then you can skip steps 6 & 7, and go straight for saving everything possible for your down payment. Still get the student loans paid off, because 5+% interest is onerous. But as soon as that's done, you have to focus on being ready for your next move/home purchase.

One more thing... Be safe on your deployment, wherever that may be, and have fun whenever you're able to. Deployed life is stressful, so take every opportunity you can to unwind & enjoy yourself. Stay in touch with your family. Ensure you've got your will updated & life insurance in place (because you never know what may happen). Good luck, and God speed.

Well said, kork!

**dizbetam** · 02-08-2018, 05:06 PM

Thank you!!

I posted before in response yesterday but I think it was too long and required moderator approval.

We have $12,000 in the checking, so it may not qualify for EF and I really need to establish that on USAA with a savings account or something. I will plan on setting that up.

The SUV - $33,000 debt I don't know if I can get rid of, it was a car that I promised for my wife's and our children's safety. However, I will definitely sell the $15,000 car that is paid off.

This will be my 4th deployment and we been together before I joined, so we are veterans on deployment but this will be the first with children, so we are expecting things to be a lot different.

Expected to have $3500 per month to pay off debt during deployment. Post deployment, maybe around $1500. If I remove my vices of eating out then we will have more.

Have to confirm but I think you can have more than 1 VA loan as long as it doesn't go over a cap (not sure the cap). Not liking the VA loan due to the 2.1% loan fee on top of all the closing fees. But need to sit down and look at my options when they come up.

As far as student loans, is it worth it to utilize the student loan forgiveness for public service? I consolidated a year ago, so 9 years left.

**dizbetam** · 02-08-2018, 05:22 PM

Down Payment Mortgage 3

I don't know if I can afford another down payment on Mortgage 3 on top of paying off debt.

But I am expecting to PCS upon return of deployment. Lots of unknown here I know, so debt reduction will be key for me to get Mortgage #3. Any suggestions, if I don't get Mortgage 3? Live in cheap apartment and save?? Sell Mortgage 1 or Mortgage 2 to get Mortgage 3??

I haven't max out my ROTH or my wife's. I am currently only putting in $200/month to TSP and I will NOT be doing the Blended Retirement. I won't Qualify for Credit Savings 2017 as our AGI is around $80k. But I see we will qualify for 2018.

**creditcardfree** · 02-08-2018, 05:57 PM

Do they still have the SDP (Savings Deposit Program)? You can earn 10% on up to $10K while in the combat zone. I believe you physically have to arrive to get it started. Could earn a good interest rate on that $10K of the EF. Far better than any savings account at USAA. I've found that Navy Federal Credit Unions have great CD rates, so I'd check those out.

$3,500 a month for 12 months means you can pay off approximately $42,000. Of course, this doesn't factor in interest. Not sure if the $3,500 is extra debt payment or includes your minimums. I mention this only because your ability to pay off all the debt during the deployment is not possible, but I think you knew that.

I'm not very familiar with the loan forgiveness programs. My concern with those types of programs is that you pin your hopes and your job on that payoff. What if you are miserable at your job, or they cancel the program? I would just make it part of your plan and get it done.

We have been able to sell all of our homes, but we currently rent. We realized that in our current location that homes don't sell fast and are barely increasing in value...maybe even losing value as they keep building new homes. May pay more per month than a mortgage, yet we have hardly any repair costs, we aren't looking to improve the home because we rent. And when we leave, we leave, no waiting to sell the house or costs to make repairs for new owner. It's been working out pretty well.

I'd likely sell both homes, but I don't want to be a landlord. And I would decide whether to rent or own based on the market of where I was going to end up next. Housing is always our biggest expense, the lower you can keep it to meet your goals the better.

**dizbetam** · 02-15-2018, 05:38 PM

Selling the car

Well I am selling my car... so now I have to determine a KBB cash buyin of $12,650 from dealership purchase. I can sell to private according to KBB for $15000.

if I try to sell this privately it will take me some time plus cleaning car, and various other things.

Debating on both... any insights on selling a car from a financial perspective? Tax implications?

I am leaning towards selling to dealership for convenience and I know I am losing out on around 2500.

If I had more time left I would definitely do the private sell.

**creditcardfree** · 02-16-2018, 05:38 AM

There are no tax implications for selling a car. If you are in a hurry, the sale at the dealership may be worth it. That is assuming they give you the amount that you are finding on KBB. If it is a bigger difference you may have reconsider if a private sale is possible.

You could get a quotes from a couple dealers and try to get one to beat the other, that is assuming you have a car that is in demand. Also get any quote in writing, preferably with an expiration date. (I've never done this, just what I might try to do.) Consider private sale up until the expiration date and then take the best offer, if you can't get the sale down on your own. I'm imagining a 30 day time frame.

This is the vehicle you own free and clear, no loans, correct?

Deployment - Tax Free