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Military Finances 201: What We're Seeing this Tax Season Thumbnail

Military Finances 201: What We're Seeing this Tax Season

Taxes

We're closing in on the end of another tax season, and we have some more observations. To be honest though, more than a few are repeat offenders.

Excess Roth Contributions

There are income limits for contributing to a Roth IRA. When on Active Duty, if the servicemember is the only wage earner, you're well below the income limit. Not so true after retirement, if you start a second career. Make sure you check on the income limits before making contributions. For your reference, here are the numbers for 2025:

  • Married Filing Jointly (MFJ): Less than $236,00 Adjusted Gross Income (AGI) to be able to contribute the full amount. The ability to contribute is completely phased out at $246,000 AGI
  • Single: Less than $150,000 AGI for full deduction phase out range is $15,000 (more than MFJ) and the ability to contribute is completely phased out at $165,000 AGI
  • Married Filing Separately (MFS): You might as well just forget about it. If AGI exceeds $10,000 (yes that's right) you can't contribute to a Roth IRA. Phase out starts at $0 AGI

If you can't directly contribute to a Roth IRA, there may be other ways to get money into a Roth IRA. Just a reminder...a 401(k)/TSP/403(b) is not an IRA and these rules don't apply to them.

Under-Withholding

When you retire from the military and start a second career you have a withholding problem. To avoid problems, at least check your Retiree Account Statement (RAS) and look at your withholding. It will probably be less than 10% of your retirement pay and that's too low. Average withholding probably needs to be closer to 15% - 20%.

Of course, there are better ways to check to see if you're withholding enough. We recommend doing a Form 1040-ES to estimate how much you should be withholding or paying in estimated taxes. We've also heard the IRS W-4 calculator is pretty good, but we can't vouch for that.

Rentals and Depreciation

Accounting for rentals and reporting it on a tax return is a bit of a mystery for many taxpayers. And it isn't just taxpayers. So far this year, we've come across two tax returns prepared professionals where the accounting wasn't even really very close. One cost the taxpayer over $900 in taxes paid that weren't really owed (we fixed it form them). Remember, to be a tax preparer you don't have to prove any level of competence to anyone.

If you're going to do it yourself, spend time to learn the rules. If you're hiring a tax preparer don't assume he or she is an EA or CPA. The person may have only gone through company provided training.

Those are some of the bigger ones. Hope your tax season comes to a pleasant close.

Military Finances are Different

Military members have financial issues different from their civilian counterparts. The tax code is perhaps the place where the differences are the greatest. Due to those differences, we think Active and Retired Senior Military Officers and NCOs should work with a financial planner or advisor that deals with those unique financial issues each and every day. If you'd like to find out how we work with people just like you, use the button below to schedule a free, initial consultation.

If you found this article useful, you might like the following blog posts:

Retired Military Finances 101: No. Your VA Disability Benefits Can Affect Your Income Taxes


Retired Military Finances 401: Exchange Funds


Military Finances 201: 2025 by the Tax Numbers


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