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Veteran Services: Finance Questions

Finances

You're working, and you've got a family that depends on you - both now and down the road. Where do you invest your money? Do you borrow against the equity in your house? Through a preferred provider relationship with USAA, The American Legion can provide expert financial advice to just about any question.

Questions & Answers

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Financial Questions & Answers

Question:

I am a retired military member, so I get a monthly retirement check. I am federally taxed on this amount. But since it is a retirement check, could I put that money in an IRA or some other retirement plan so I don’t get taxed on it? - John

Answer:

I like the way you think. The idea of reducing taxes and putting money into IRAs is appealing, but unfortunately, the IRS does not consider income from a pension, military retirement, or other investment income as “taxable compensation” for the purposes of contributing to an IRA or other pretax retirement plan. In the IRS’ view, retirement-account contributions must be “earned income.” Wages, self-employment income, commissions, nontaxable combat pay and even alimony would qualify as earned income, but the fruit of your service does not. I actually have retired clients who work part time in order to allow them to put money away in a Roth or traditional IRA. If a part-time job works for you, then you could contribute to an IRA. Thank you for your decades of military service.