Turning Deployment Into a Financial Advantage

If you just got word you’re deploying, you’re probably juggling a lot at once. While the news can be heavy, there are several concrete ways to turn this season into a financial win. Here is a clear, actionable guide to the benefits you can use and the moves that can put real money back in your pocket.

1) Combat Zone Tax Exclusion

Income earned in a designated combat zone is tax-exempt for most service members. This typically covers:

• Base pay

• Incentive pays such as flight pay and hazardous duty pay

• Some bonuses, depending on type and timing

Tip: If a bonus is due, check whether it can be paid while you’re in the combat zone so it qualifies for tax-free treatment.

2) Special Pays You Should Expect

• Imminent Danger/Hostile Fire Pay: About 225 dollars per month.

• Family Separation Pay: About 250 dollars per month while you are away from your dependents.

• Incidental Expenses: 7 dollars per day for incidentals, whether you use it or not.

Individually these may feel modest but every bit helps.

3) Savings Deposit Program at 10 percent

If you can set aside up to 10,000 dollars, the SDP pays a guaranteed 10 percent annualized return while you are deployed. You can enroll in theater. If you have cash in a basic savings account, this is a rare chance to lock in a strong, low-risk return.

4) Tax-Free Leave and Month-Crossing

Time in a combat zone makes that month tax-free if you were in zone for at least one day. When you return, how your leave lines up with the calendar matters because leave is processed first in, first out.

• If you return on, say, the 4th of the month, that month can still be tax-free.

• If you immediately take leave, tax free leave days may be applied while you still have tax-free status, which can reduce the benefit.

• If you return near month end, consider working a few days into the next month before taking leave so more of your leave pay lands in a fresh tax-free month.

Coordinate with your leadership and finance office to stay within policy while maximizing the timing.

5) Thrift Savings Plan: Use Roth While Deployed

Deployment is the perfect time to review TSP strategy.

• Traditional TSP contributions made from tax-free combat pay go in tax-free, but the earnings are taxable when withdrawn.

• Roth TSP contributions from tax-free combat pay go in tax-free and earnings are tax-free in retirement if qualified.

• If you normally contribute Traditional, consider switching to Roth for the months you are tax-exempt.

There is also a powerful contribution limit opportunity. While deployed, you can contribute up to the total plan limit, not just the regular elective deferral. For 2025 that overall limit is 69,000 dollars if under 50, or 76,500 dollars if 50 or older. If you have the cash flow available, you can move far more into Roth during deployment than in a normal year.

6) The Saver’s Credit

This is a great opportunity that few are aware of!  Combat-zone pay can lower your taxable income, this means you might qualify for the Saver’s Credit even if you usually do not. The credit is calculated on the first 2,000 dollars you contribute per person to retirement accounts. Married couples can claim up to 4,000 dollars combined. The credit rate ranges from 10 percent to 50 percent depending on income.   If your AGI falls below the maximum for these credits, you qualify and can earn up to $2000 in tax credits!

Tip: If married, split contributions so at least 2,000 dollars goes in each spouse’s account. Putting all 4,000 dollars in one name leaves credit on the table.

7) Harvest Long-Term Capital Gains at 0 percent

Lower taxable income can place you in the 0 percent long-term capital gains bracket. If you hold appreciated investments in a taxable account, you can sell to realize gains at 0 percent, then buy them right back to reset your cost basis. Wash-sale rules apply only to losses, not gains. This is a clean way to reduce future taxes without changing your portfolio.

8) Brackets, Bonuses, and Spousal Income

With several months of tax-exempt pay, your annual taxable income can drop sharply. That can:

• Create room for a spouse to take a job and still keep the household in lower brackets

• Allow a taxable bonus that does not qualify for tax-exempt treatment to land in a lower bracket

• Open a window for Roth conversions in outside IRAs or a spouse’s plan while your bracket is temporarily lower

9) Charitable Giving: Consider Bunching With a Donor-Advised Fund

If you give regularly, consider “bunching” contributions in a non-deployment year to itemize, or funding a donor-advised fund in December before a January deployment. You get the deduction up front and can grant the funds to your church or charities on your normal schedule while you are away.

A Simple Deployment Money Checklist

• Enroll in SDP and target 10,000 dollars if possible

• Switch TSP contributions to Roth during tax-exempt months

• Check bonus timing for tax-free eligibility

• Map your return and leave dates to preserve tax-free months

• Max the Saver’s Credit by contributing at least 2,000 dollars for each spouse

• Harvest long-term capital gains at 0 percent if your income allows

• Consider spouse income, bonus timing, and Roth conversions while your bracket is lower

• If charitable, explore a donor-advised fund for deduction timing in non-deployed years

I’d like to personally thank you for your service. Your nation appreciates the sacrifice you and your family are making so we can enjoy the freedoms we have grown accustomed to.  I wish you a speedy and safe return to your loved ones.  If you’d like additional help establishing a full comprehensive plan, please reach out and we can discuss. 

Educational only. Not tax, legal, or investment advice. Talk with your finance office or a qualified professional about your situation.