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Unlocking the Five Essential Benefits for Military Families: A Guide for University of Chicago Employees

Military families face plenty of financial challenges. If you're saving for college or University of Chicago retirement, buying a home, or wondering how to help secure your family's financial future, don't overlook these five important benefits.

1. Thrift Savings Plan

Retirement from University of Chicago is something you need to plan for, whether it's far away or just around the corner. Even if you can rely on a military pension because you've stayed in the service for 20 years or more, it's probably not going to provide all the retirement income you'll need, and neither is Social Security. That's why it's important to save for your University of Chicago retirement on your own. One option you have is to contribute to the government's Thrift Savings Plan (TSP).

The TSP is a retirement savings plan for federal employees, including service members. When you make traditional contributions to the TSP, you get the same types of savings and tax benefits as you would if you contributed to a 401(k) plan offered by a private-sector employer. Contributing to the TSP is simple--your regular contributions are deducted from your paycheck before taxes (which can lower your taxable income for the year), and your contributions and any earnings accumulate tax deferred until withdrawn in retirement. You can also opt to make after-tax Roth contributions. They won't reduce your current tax liability, but qualified withdrawals in retirement will be tax-free (assuming IRS requirements are met).

You can enroll, change, or cancel your contributions whenever you'd like. You can contribute as little as 1% or as much as 100% of your basic pay (or a designated dollar amount) each pay period, up to what's called the elective deferral limit for the year. In 2020, you can contribute up to $19,500; if you're age 50 or older and are making catch-up contributions, you can contribute up to $26,000.

If you're contributing a percentage of your basic pay, you can also contribute a percentage of your incentive pay, special pay, or bonus pay (but you can't make catch-up contributions from these types of pay). And if you're deployed and receiving tax-exempt pay (i.e., pay that's subject to the combat zone exclusion), you can also make contributions from that pay, and your contribution limit for the year is even higher; the limit for total contributions from all types of pay is $57,000 for 2020.

When you leave the military, you can't continue to contribute to the TSP, but you have the option of keeping your money in the TSP or rolling it over to another retirement account, such as a traditional or Roth IRA or an eligible employer plan. For our University of Chicago clients who would like more information on the TSP, visit tsp.gov.

2. Savings Deposit Program

Are you trying to save money to buy a vehicle or make a down payment on a home? Do you need to set aside money for a rainy day? If you're deployed to a designated combat zone for more than 30 consecutive days, you may have a unique chance to save for your goals at a guaranteed interest rate by participating in the Defense Department's Savings Deposit Program (SDP).

The SDP pays you 10% interest on deposits up to $10,000 while you're deployed, and you'll earn this interest rate on your money for up to 90 days after your return. You may deposit all or part of your unallotted pay. Interest compounds quarterly and is taxable.

Generally, you can withdraw funds and close your account only after you leave the combat zone and are no longer eligible to participate in the SDP, although emergency withdrawals, while you're deployed, are allowed in some cases. Other rules and eligibility requirements apply. For our University of Chicago clients who would like to find out more or begin participating in the SDP, contact your local military finance office.

3. Post-9/11 GI Bill

Education benefits are one of the most valuable benefits available to servicemembers. If you're entitled to benefits, the Post-9/11 GI Bill will pay up to the full cost of in-state tuition and fees at public colleges for up to four years, or up to a certain maximum amount per academic year if you attend a private college or foreign school. The maximum for the 2019 - 2020 academic year (August 1, 2019 through July 31, 2020) is $24,476.79. Extra benefits may be available to those who are enrolled in Science, Technology, Engineering and Math (STEM) programs. But if you don't need to use your entitlement, the Post-9/11 GI Bill can provide a great way to pay for your family's education. Servicemembers who make a long-term service commitment have the opportunity to transfer unused education benefits (up to 36 months' worth) to their spouses and children.

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To transfer your unused benefit entitlement to your spouse, you must have served at least 6 years, and generally commit to serving 4 additional years from the date a benefit transfer is approved (some exceptions to this added service requirement exist). Once the transfer is approved, your spouse may begin using the benefits immediately and generally has an unlimited amount of time to use the benefits. If you opt to transfer your unused entitlement to your dependent children, they can use the benefits only after you've completed at least 10 years of service. In addition, they must have attained a secondary school diploma or equivalency certificate or have reached age 18, and they can use the benefit entitlement only until reaching age 26. If both your spouse and your children are attending school, you can opt to split your benefit entitlement among them. For our University of Chicago clients who would like to learn more about GI Bill benefits for you and your family members, visit benefits.va.gov.

4. VA Home Loan

Saving for a down payment is one of the biggest obstacles to homeownership. Fortunately, military families can often benefit from the no-down-payment requirement of a VA loan. This type of loan, which can only be used to finance a primary residence, also features another money-saving benefit: borrowers aren't required to pay mortgage insurance.

Despite its name, the VA loan isn't handled by the government. Like other home loans, VA loans are offered by private lenders such as banks, credit unions, and mortgage companies. The VA guarantees a portion of the loan, which may make it easier for you to obtain a loan or qualify for more favorable terms, including lower closing costs and appraisal fees. Not all lenders offer VA loans, so you'll need to ask potential lenders whether they are VA-approved lending institutions.

One lesser-known feature of the VA loan program is the opportunity to do a cash-out refinancing. If you have substantial home equity, this feature allows you to refinance an existing home loan (including a non-VA loan) while borrowing extra money, which you can use to pay off debt or make home improvements, for example. A VA loan is often a good choice for military families, but it's not the only game in town. We suggest that these University of Chicago clients compare the terms, interest rates, closing costs, and fees against other mortgage options. One drawback of a VA loan is the funding fee that's generally required. This funding fee which you pay at closing (it can be financed into the loan) is a percentage of the amount you're borrowing.

For our University of Chicago clients who would like more information on VA loans, including how to qualify and how to apply, visit benefits.va.gov.

5. Servicemembers' Group Life Insurance

Knowing that your family will be protected is extremely important, and affordable term life insurance coverage is available through the Servicemembers' Group Life Insurance (SGLI) program. Eligible servicemembers are automatically enrolled in SGLI, and spouses and dependent children are generally automatically insured through a related program, Family Servicemembers' Group Life Insurance (FSGLI). When you leave the military, you can apply to convert your policy to Veterans' Group Life Insurance (VGLI), which provides renewable term coverage.

An SGLI policy may also be converted to an individual policy sold by a participating commercial company. (Deadlines apply to both types of conversions.) However, you should carefully evaluate your options to determine whether VGLI will meet your life insurance needs. Points to consider include premium costs, plan features, and whether term insurance is your best option. For our University of Chicago clients who would like more information about these and other life insurance programs for servicemembers, visit insurance.va.gov.

What are the eligibility criteria for participation in the SEPP plan for employees of The University of Chicago, and how can factors like years of service and age impact an employee's benefits under this plan? Discuss how these criteria might have changed for new employees post-2016 and what implications this has for retirement planning.

Eligibility Criteria for SEPP: Employees at The University of Chicago become eligible to participate in the SEPP upon meeting age and service requirements: being at least 21 years old and completing one year of service. For employees hired after the plan freeze on October 31, 2016, these criteria have been crucial in determining eligibility for newer employees, impacting their retirement planning as they do not accrue benefits under SEPP beyond this freeze date.

In what ways does the SEPP (Staff Employees Pension Plan) benefit calculation at The University of Chicago reflect an employee's years of service and final average pay? Examine the formulas involved in the benefits determination process, including how outside factors such as Social Security compensation can affect the total pension benefits an employee receives at retirement.

Benefit Calculation Reflecting Service and Pay: The SEPP benefits are calculated based on the final average pay and years of participation, factoring in Social Security covered compensation. Changes post-2016 have frozen benefits accrual, meaning that current employees’ benefits are calculated only up to this freeze date, affecting long-term benefits despite continued employment.

How can employees at The University of Chicago expect their SEPP benefits to be paid out upon their retirement, especially in terms of the options between lump sum distributions and annuities? Analyze the advantages and disadvantages of each payment option, and how these choices can impact an employee's financial situation in retirement.

Payout Options (Lump Sum vs. Annuities): Upon retirement, employees can opt for a lump sum payment or annuities. Each option presents financial implications; lump sums provide immediate access to funds but annuities offer sustained income. This choice is significant for financial stability in retirement, particularly under the constraints post the 2016 plan changes.

Can you elaborate on the spousal rights associated with the pension benefits under the SEPP plan at The University of Chicago? Discuss how marital status influences annuity payments and the required spousal consent when considering changes to beneficiary designations.

Spousal Rights in SEPP Benefits: Spouses have rights to pension benefits, requiring spousal consent for altering beneficiary arrangements under the SEPP. Changes post-2016 do not impact these rights, but understanding these is vital for making informed decisions about pension benefits and beneficiary designations.

As an employee nearing retirement at The University of Chicago, what considerations should one keep in mind regarding taxes on pension benefits received from the SEPP? Explore the tax implications of different types of distributions and how they align with current IRS regulations for the 2024 tax year.

Tax Considerations for SEPP Benefits: SEPP distributions are taxable income. Employees must consider the tax implications of their chosen payout method—lump sum or annuities—and plan for potential tax liabilities. This understanding is crucial, especially with the plan’s benefit accrual freeze affecting the retirement timeline.

What resources are available for employees of The University of Chicago wishing to understand more about their retirement benefits under SEPP? Discuss the types of information that can be requested from the Benefits Office and highlight the contact methods for obtaining more detailed assistance.

Resources for Understanding SEPP Benefits: The University provides resources for employees to understand their SEPP benefits, including access to the Benefits Office for personalized queries. Utilizing these resources is essential for employees, especially newer ones post-2016, to fully understand their retirement benefits under the current plan structure.

How does The University of Chicago address benefits for employees upon their death, and what provisions exist for both spouses and non-spouse beneficiaries under the SEPP plan? Analyze the specific benefits and payment structures available to beneficiaries and the conditions under which these benefits are distributed.

Posthumous Benefits: The SEPP includes provisions for spouses and non-spouse beneficiaries, detailing the continuation or lump sum payments upon the death of the employee. Understanding these provisions is crucial for estate planning and ensuring financial security for beneficiaries.

What factors ensure an employee remains fully vested in their pension benefits with The University of Chicago, and how does the vesting schedule affect retirement planning strategies? Consider the implications of not fulfilling the vesting criteria and how this might influence decisions around employment tenure and retirement timing.

Vesting and Retirement Planning: Vesting in SEPP requires three years of service, with full benefits contingent on meeting this criterion. For employees navigating post-2016 changes, understanding vesting is crucial for retirement planning, particularly as no additional benefits accrue beyond the freeze date.

Discuss the impact of a Qualified Domestic Relations Order (QDRO) on the SEPP benefits for employees at The University of Chicago. How do divorce or separation proceedings influence pension benefits, and what steps should employees take to ensure compliance with a QDRO?

Impact of QDROs on SEPP Benefits: SEPP complies with Qualified Domestic Relations Orders, which can allocate pension benefits to alternate payees. Understanding how QDROs affect one’s benefits is crucial for financial planning, especially in the context of marital dissolution.

How can employees at The University of Chicago, who have questions about their benefits under the SEPP plan, effectively communicate with the Benefits Office for clarity and assistance? Specify the various communication methods available for employees and what kind of information or support they can expect to receive.

Communicating with the Benefits Office: Employees can reach out to the Benefits Office via email or phone for detailed assistance on their SEPP benefits. Effective communication with this office is vital for employees to clarify their benefits status, particularly in light of the post-2016 changes to the plan.