Personal Finance Guide for Military Service Members and Families

Certain aspects of personal finance are universal. Whether you’re in the military or a civilian, you need to spend less than you earn, stash some money in your emergency fund for expenses that are bigger than your monthly cash flow can cover, and invest for retirement. You also need various forms of insurance to protect your assets and your loved ones.

However, certain aspects of personal finance are specific to people working in certain fields, and there are a lot of specific things about being a military service member, partner, or spouse. Most people don’t have to move across the country—or the world—every two to four years. They don’t have access to a host of special benefits, from help with paying for housing and higher education to tax-free forms of pay. And let’s face it, most people aren’t at significant risk of dying or becoming traumatized or permanently disabled through combat.

That’s why we’ve put together this personal finance guide for military service members and their families: to help you navigate the financial challenges of working in the U.S. armed forces. In this introductory article, we’ll explore some of those challenges. By following our guide, you can learn more about the resources that can help you solve specific problems, such as deciding where to live, making the most of your insurance benefits, and saving for retirement.

PCS Orders and the Costs of Moving

Moving is a major part of military life. Permanent change of station (PCS) orders mean packing up all your belongings, finding a new place to live, and transporting everything there, usually just when you’re starting to feel settled in your current location. While the military will help with many of your moving expenses, you will still need to manage your move carefully to limit or avoid out-of-pocket costs.

You will receive a dislocation allowance (DLA) based on your rank and family status.1 For fiscal year 2021 DLA ranges from $1,039.11 for an E-1 without dependents to $5,209.17 for an O-7 and above with dependents.2 You will also get a per diem to pay for your meals and lodging while moving. Per diem rates vary by location.3

For moves within the continental United States, the maximum rate is $151 for fiscal year 2021 for service members.4 Additional per diem is provided for each family member: 75% of the service member’s rate for a spouse, 75% for children 12 and over, and 50% of the rate for children under 12.5

The temporary lodging expense (TLE) reimburses you for five or 10 days of temporary lodging and meals during your move within the continental United States. The temporary lodging allowance (TLA) reimburses you for up to 10 days when leaving and up to 60 days upon arrival when you’re relocating outside the continental United States.6

The military also pays to move your household goods. Specifically, it pays for the cost to move a certain weight of goods, which depends on your rank and dependent status.7 What about moving your vehicle? If you drive, you will be reimbursed per mile. If you ship your vehicle for a move within the continental United States, the expense is your responsibility. For moves outside the continental United States, the military will pay to ship one personal vehicle, subject to size limits.8

While the military covers many moving expenses, you may still pay something out of pocket, especially if you have a lower rank with a lower DLA. For example, your family may need clothing for a new climate, there may be expenses associated with moving your pet, and items may be lost or broken.9 The last may be covered by homeowners or moving insurance, but sometimes getting reimbursed can be a challenge. On the other hand, some members report coming out ahead by accepting a reimbursement of 95% of what the government move would have cost, then doing the work themselves.10

Insurance

The military has your health and dental insurance covered through TRICARE and its Active Duty Dental Plan, so you won’t have to worry about those when moving out of state as civilians often do.1112 However, if you own a home or vehicle, you will have to deal with some insurance issues.

Car insurance rates vary significantly by state, so you could find yourself paying much higher (or lower) premiums after a move. If you are deployed and no one will be driving your vehicle, you may be able to save money by dropping your auto liability insurance coverage if your state allows it. You may want to keep your comprehensive coverage in case your vehicle is damaged or stolen while you’re away.

If your home will be vacant for an extended period—or you will be renting it out—you may need to adjust your homeowners insurance policy. You should also be aware of what personal property coverage your homeowners insurance and movers provide for your items during a move and during deployment.13

Spousal Employment

For military spouses who want or need to work, maintaining steady employment and earning raises and promotions can be a major challenge because of frequent moves. According to Blue Star Families, a nonprofit dedicated to strengthening military families, 35% of spouses of active-duty military personnel who responded to the organization’s annual survey said they were unemployed but wanted or needed to work. The problem is especially pronounced for people of color.14

The high cost of childcare keeps many military spouses from working, as does the unpredictability of the service member’s schedule. In some cases couples end up living in geographically distant locations to allow both the service member and civilian partner to work.15

For spouses who are unable to work or are underemployed, saving for retirement can be a challenge. Couples who can afford it may want to establish a spousal individual retirement account (IRA). This tax-advantaged IRA allows the working service member to contribute up to the annual maximum ($6,000 in 2021) to a traditional or Roth IRA in the nonworking spouse’s name.16

Another issue that can affect spousal employment is a service member’s injury or disability if they are wounded in combat. According to Military.com, the intense caregiving responsibilities can make it a challenge to work and move up the career ladder.

Taxes

For a civilian, earning income in more than one state or country can make filing income tax returns more complicated. For a service member, frequent moves, deployments, and special types of pay, such as combat pay, make things even more complex. To help, the Department of Defense offers free, military-specific online tax preparation and electronic filing software called MilTax, available through your Military OneSource account.17

As a service member, the state to which you pay income taxes will depend on where you have established your domicile. The Internal Revenue Service (IRS) defines “domicile” as “the permanent legal home you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. It isn’t always where you presently live.”18

You may be able to reduce your taxes on your military income considerably by registering your vehicle, registering to vote, actually voting, and obtaining your driver’s license in a state with no state income tax or one that does not tax military pay (Military.com provides a handy list).19 Military spouses may be able to claim the same domicile as their service member spouse under the Military Spouse Residency Relief Act, but in some cases they may have to pay state taxes where they presently live.20

Serving in the U.S. military can create so many tailored tax situations that the IRS has an entire publication devoted to them: Publication 3, Armed Forces Tax Guide.21 It discusses military-specific topics, such as which types of pay are not taxable. It also covers issues that are discussed separately in other tax publications, such as information about the Child Tax Credit, Earned Income Tax Credit (EITC), and the deductibility of moving expenses, but it aims to include all the information most military service members will need to know in a single publication.2221

The Bottom Line

As a military service member or spouse, you will experience personal financial challenges related to frequent, mandatory moves, from moving expenses to challenges with spousal employment and child care to insurance and taxes. In the following chapters of this guide, you’ll learn more about how to limit the struggles and become financially successful by taking full advantage of all the pay and benefits to which you’re entitled, from basic training through retirement.