The Savings Deposit Program: A Great Benefit When Deployed to a Combat ZoneMilitary Pay and Benefits Managing Your Finances
Guaranteed Income When Deployed to a Combat Zone
Military members are eligible for the Savings Deposit Program (SDP) when they serve in a eligible combat zone. Specifically, you can contribute to the SDP when you have been in the combat zone for 30 days or at least 1 day in each of three consecutive months.
Unlike most investment options, like stocks, bonds, mutual funds and ETFs, the SDP pays a guaranteed amount of interest and the guaranteed income is pretty impressive. It is 10%. There is no other investment option that can provide that return with no risk of loss.
You are allowed to deposit up to $10,000 into SDP.
Even though you are deployed to a combat zone, the interest on the deposit is taxable income.
How Does SDP Work?
Once you meet the service requirement, your deployed finance office should be able to help you with the paperwork to open the account. Once your account is open, it stays open while you are in the combat zone.
You can make contributions via cash, check or through an allotment from your military pay.
You can't take the money out (except under special circumstances) until you leave the combat zone. Your account will continue to pay interest for 90 days after you leave the combat zone. Your funds plus interest will be paid automatically via direct deposit 120 days after leaving the combat zone. If you want your funds before the 120 day automatic distribution, you can request a withdrawal via MyPay (and since they're not paying interest after 90 days, you probably should).
If you balance exceeds $10,000 when interest is earned you can withdraw the amount in excess of $10,000 on a quarterly basis.
Your commander must approve any requests for an emergency withdrawal. He or she must determine that the withdrawal is necessary for the health and welfare of you or your family.
Should You Contribute to SDP?
SDP is a pretty good deal...10% interest is pretty hard to pass up. Maybe you shouldn't pass. But before you sign up, make sure you consider your other options. You will also be able to make contributions to the Roth TSP with tax free Combat Pay which can be a pretty good idea too. You can also contribute more than the annual limit to TSP.
You'll need to determine if the 10% guaranteed interest which may or may not be taxable, the permanent tax-free Roth TSP contributions or increased TSP contributions are best for you. Or...you can work with a financial planner that specializes in advising military officers.
If you found this article useful, you might enjoy the following blog posts.
Roth TSP in a combat Zone: Almost a "No Brainer"
TSP in a Combat Zone (Part II)
Military Tax Benefit: Extend IRS Deadlines