Optimize your Military retirement

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On Veteran’s Day, we at RCS Financial Planning take a moment to recognize and appreciate the service of all veterans. Because of our proximity to several military installations and the nation’s Capitol, we are privileged to count amongst our clients many who have or are currently serving in the military.

We encourage service members to consider their TSP, retirement pensions, and disability benefits as part – but not all – of their retirement income sources. These benefits are great to have, but they certainly aren’t the whole picture when it comes to preparing for retirement. We encourage those approaching their military retirement date to make us part of their transition. We can help compare compensation plans for civilian job offers, analyze cost of living to consider relocating, and weave together just what cash flow might look like as all the pieces fall into place for the next move. And we make sure no stone is left unturned in optimizing benefits and tax breaks.

While veterans, and especially military retirees, have a great many financial benefits available to them, tracking down all of these benefits and how and where to make the most of them can be a bit confusing or even overwhelming. Fortunately for our veteran clients, we relish the opportunity to ensure they take advantage of every possible benefit. Here are a few that might get overlooked:

  • Maryland State Taxes on U.S. Department of Veterans Affairs Disability Dependency and Indemnity Compensation (DIC): DIC is a tax-free monetary benefit paid to eligible survivors of military Service members who died in the line of duty or eligible survivors of Veterans whose death resulted from a service-connected injury or disease.
  • Maryland Income Tax Subtraction for Survivor Benefit Plan (SBP)/ Reserve Component Survivor Benefit Plan (RCSBP)/ Retired Serviceman’s Family Protection Plan (RSFPP): Surviving Spouses who receive SBP, RCSBP or RSFPP annuities can subtract up to $5,000 of their survivor benefit payment from their gross income before determining their Maryland tax. At age 55 this subtraction increases to $15,000.
  • Maryland Income Tax Subtraction for SBP/ RCSBP/ RSFPP: This subtraction is available to the Surviving Spouse of a retired Service member from an active or reserve component of the U.S. Armed Forces who is receiving an SBP, RCSBP or RSFPP annuity. Maryland Pension Exclusion: Maryland residents who are 65 or older or totally disabled (or their Spouse is totally disabled), may qualify for a pension exclusion from their gross income of $34,300 for the 2021 and 2022 tax years. To be eligible residents must be 65 or older or totally disabled, (or Spouse was totally disabled), on the last day of the tax year and the pension must have been included in their federal gross income.
  • Maryland Disabled Veterans Property Tax Exemption: Maryland offers a property tax exemption to Veterans who have a service-connected 100% permanent and total, or unemployable disability rating from the VA. This is a complete exemption from real property taxes on their house and surrounding yard. This exemption is available to unremarried Surviving Spouses of eligible Veterans and to Surviving Spouses of Service members killed in the line of duty.
  • Maryland Veterans Local Property Tax Credits: Several Maryland Counties have property tax credits for eligible Veterans and their Surviving Spouses. These credits apply to the primary home and the surrounding land. To determine if your county offers a tax credit and to apply, applicants should contact their local tax assessor office.
  • Maryland Military Spouse Residency Relief Act: Spouses of nonresident Service members remain a nonresident for state tax purposes when they are in Maryland due to military orders and do not have to pay taxes on wages earned in Maryland.
  • Maryland Vessel Excise Tax Credit for Military Personnel: Active duty Service members stationed in Maryland are exempt from the 5% vessel excise tax for one year. This exemption applies only to boats registered elsewhere and brought to Maryland during a permanent change of station.
  • Maryland Tax Extension for Service in a Combat Zone or Hazardous Duty Area: Maryland allows the same six-month extension for filing and paying state income taxes for Service members (and their Spouse) serving in a designated combat zone or qualified hazardous duty area as allowed by the IRS.
  • Maryland Tax Forgiveness for Deceased Service Members: Maryland will abate the taxes owed by a Service member serving on active duty in the U.S. Armed Forces who dies in a combat zone or hazardous duty area (qualifying area) or from wounds, disease, or injury they received while there. The abatement will apply to the tax year in which death occurred, and any earlier tax year ending on or after the first day the Service member started serving in a qualifying area. Maryland will also abate the tax liability of Service member serving in the U.S. Armed Forces if their death occurs as a result of wounds or injury received outside the U.S. in a terrorist or military action.

Source: https://myarmybenefits.us.army.mil/

Wondering how you can optimize your financial picture in military retirement? We can help. Let’s talk.