5 Tips on Investing for Veterans

1. Contribute to a Thrift Savings Plan

If you're still in the military, the Thrift Savings Plan (TSP) is the federal government's version of a 401(k) plan. When you make contributions, the government will match up to 5% of your salary—that's 1% automatically, regardless of your contribution, plus a matching contribution that goes up to 4% as you increase your savings.

Additionally, the TSP charges very low administrative fees, which means you get to keep more of your gains compared with other retirement plans.

If you work for the government and for a private employer, you can contribute to both a TSP and a 401(k) plan, but the IRS will cap your annual combined contributions at $20,500 between the two accounts. You can also take advantage of an individual retirement account (IRA), which allows you to contribute up to $6,000 annually.

Unfortunately, you won't be able to contribute to a TSP once you leave the military, though you can contribute to another one if you decide to work for a different government agency.

2. Use the U.S. Department of Defense Savings Deposit Program

If you're an active-duty service member or have plans to be, look into the DoD Defense Savings Program. The program offers a 10% interest rate on deposits of up to $10,000—the interest is compounded monthly and paid quarterly.

Note, however, that there are strict requirements to be eligible for the program. More specifically, you need to have served in a covered area for at least 30 consecutive days or at least one day for each three consecutive months before you can make a deposit, with limits on your initial deposit.

You may be in a covered area if you're in a designated combat zone, you're receiving hostile fire or imminent danger pay as you serve in a qualified hazardous duty area, or you're in a designated direct support area of a combat zone.

3. Contribute Your Combat Pay to a Roth IRA

For most taxpayers, contributions to an IRA are taxable, either before you make the contribution or when you withdraw it in retirement. But for military members who earn nontaxable combat pay, legislators made an exception with the Heroes Earned Retirement Opportunities (HERO) Act.

If you return to active duty and serve in a designated combat zone, you can contribute combat-related compensation to an IRA despite the fact that the income is not considered taxable.

While you can contribute to both a traditional and Roth IRA, the Roth option is generally better because your contributions grow tax-free, and your withdrawals in retirement will also be tax-free.

4. Take Advantage of the GI Bill

If you want to invest in your future, getting a quality education is a big part of that process. The Post-9/11 GI Bill offers to pay up to 100% of your tuition and fees, as well as a monthly housing allowance and stipend for textbooks and supplies for up to 36 or 48 months.

How much you qualify for depends on how long you've served in the military since September 10, 2001—if you've served at least 90 days, you get some benefits, but you need at least 36 months of service or at least 30 continuous days and a discharge due to a service-connected disability to get the full value of the program.

With help from the GI Bill, you'll be able to attend college for the first time, return for a graduate degree, join a vocational program, get on-the-job training or a number of other steps to further your career. The program can help you avoid student loans and increase your income after graduation, both of which can create more room in your budget to invest for your future.

5. Apply for a VA Loan

If you decide to buy a house, seriously consider taking advantage of the VA loan program. VA loans don't require a down payment or mortgage insurance, so you'll be able to save upfront and over the course of your loan.

There is an upfront funding fee that costs up to 2.3% of your loan amount on your first VA loan, then up to 3.6% on subsequent VA loans, but that's it. If you're a disabled veteran receiving service-connected disability payments or you're eligible for the compensation but are receiving retirement or active-duty pay instead, you're exempt from paying the funding fee.

Additionally, VA loan interest rates tend to be lower than conventional loan rates by an average of about 0.25%. This is because the U.S. Department of Veterans Affairs provides insurance for lenders in the event that you default, so lenders can afford to charge lower rates.

With all of these savings, you'll have more room in your budget to contribute to your retirement account and other traditional investment opportunities.

Other Steps You Can Take to Invest More

While the following steps aren't specific to military members and veterans, they can help you improve your finances and make it easier to invest for your future:

• Set goals and create a plan for your finances.
• Create an emergency fund and target saving three to six months' worth of expenses.
• Prioritize paying off high-interest debt.
• Start investing as soon as you can, even if it's just a small amount at first.
• Use employer-sponsored retirement plans, especially if the employer offers matching contributions.
• Consider working with a financial advisor to help you manage your investments.
• Compare fees charged by advisors, brokers and funds.
• Consider investing in index funds to limit your fees.
• Diversify your portfolio to reduce some of the risks inherent in different types of securities.