Financial Readiness for Veterans

The Thrift Savings Plan (TSP) is your military retirement savings account — similar to a 401(k) in the private sector. When you separate, your TSP does not disappear. You have three options: keep it open, roll it over, or withdraw the money.

Your Options After Separation

• Keep your money in the TSP — Your account stays open and continues to grow. You can still change investments.
• Roll it over to a Traditional IRA, Roth IRA, or a new employer's 401(k)/403(b).
• Withdraw some or all of it — but this may trigger income taxes and a 10% early withdrawal penalty if you are under 59½.

Rollover Destinations

Traditional TSP can roll into a Traditional IRA (no taxes owed), a Roth IRA (you owe income tax on the full amount that year), or a new employer's 401(k)/403(b) if they accept rollovers. Roth TSP can roll into a Roth IRA or Roth 401(k) with no taxes owed.

Important: Always do a "direct rollover" (TSP sends money directly to the new plan). If you take the check yourself, TSP withholds 20% for federal taxes, and you have only 60 days to deposit the full amount into a new account or face taxes and penalties. Initiate rollovers online at tsp.gov.

The Age 55 Separation Rule

If you separate from service during or after the year you turn 55, you can withdraw from your TSP without the 10% early withdrawal penalty. This rule applies only to employer plans like TSP — it does not apply to IRAs. Other exceptions include the 72(t) substantially equal periodic payments method and total and permanent disability.

Why TSP Fees Are Hard to Beat

The TSP charges approximately 0.035% in total expenses (about 35 cents per $1,000 invested per year). The average mutual fund charges 0.50% to 1.0%, and many 401(k) plans charge 0.30% to 0.80%. Less than 1% of roughly 170,000 available investment funds report expenses below the TSP's rate.

TSP Fund Options

2025 Contribution Limits

• Elective deferral limit: $23,500 per year
• Catch-up contributions (age 50+): Additional $7,500 per year
• Annual addition limit (including matching): $70,000

Combat Zone Tax-Exempt Contributions

If you contributed to your Traditional TSP from tax-exempt combat pay, those specific contributions are not taxed again when withdrawn. However, the earnings on those contributions are taxable. When rolling over, make sure tax-exempt contributions are properly tracked — rolling them into a Roth IRA can preserve their tax-free status.

Key contacts: TSP ThriftLine at 1-877-968-3778, or manage your account online at tsp.gov.

Servicemembers' Group Life Insurance (SGLI) provides up to $500,000 of low-cost coverage during service at just $25/month for maximum coverage. When you separate, your SGLI continues for 120 days at no cost. After that, you need a plan.

VGLI Application Deadlines

Veterans' Group Life Insurance (VGLI) lets you convert your SGLI to a renewable term policy after separation.

The 240-day deadline is critical. If you develop a health condition after separation and apply late, you could be denied. Apply within 240 days even if you plan to shop for private insurance.

VGLI Premium Rates ($400,000 Coverage)

VGLI premiums are based on your age and increase every 5 years. In 2025, the VA approved premium discounts of 2% to 17% across all age groups (average 11% reduction).

For exact rates, use the VGLI rate calculator at benefits.va.gov/insurance/vgli_rates_new.asp or call OSGLI at 1-800-419-1473.

VGLI vs. Private Life Insurance

• VGLI is better if: You have health conditions that make private insurance expensive or impossible, you value guaranteed acceptance, or you want coverage that never expires.
• Private insurance may be better if: You are in good health and under 50, you only need coverage for a set period (10, 20, or 30 years), or you can pass a medical exam. A healthy 30-year-old can get $500,000 of 20-year term coverage for around $20–30/month from private insurers.

Recommended strategy: Apply for VGLI within 240 days to lock in guaranteed coverage. Shop for private term life insurance at the same time. If you qualify for a cheaper private policy, cancel VGLI. If you cannot get private coverage due to health issues, keep VGLI as your safety net.

SGLI Disability Extension

If you are totally disabled at separation, you may qualify for up to 2 years of free SGLI coverage. Apply within 120 days of discharge using Form SGLV 8715.

Family SGLI (FSGLI)

• Spouse coverage: Up to $100,000 in $10,000 increments
• Child coverage: $10,000 per child (free — no premium)
• FSGLI for spouses ends 120 days after separation — spouses can convert to a commercial policy within that window

Action Checklist

1. Note your exact separation date — your 120-day free coverage and 240-day VGLI application windows start here
2. Apply for VGLI within 240 days (even if you plan to shop for private insurance)
3. If totally disabled, apply for SGLI Disability Extension within 120 days (Form SGLV 8715)
4. Evaluate your life insurance needs — consider dependents, debts, and income replacement
5. Compare VGLI rates to private term life quotes
6. Update your beneficiary designations

TSGLI — Traumatic Injury Protection

Traumatic Servicemembers' Group Life Insurance (TSGLI) provides a one-time lump-sum payment of $25,000 to $100,000 per qualifying traumatic injury. The $1.00/month premium is included in your SGLI premium automatically.

Qualifying injuries include: loss of limb(s) at or above wrist/ankle, total and permanent loss of sight in one or both eyes, loss of speech, severe traumatic brain injury (TBI), paraplegia/quadriplegia, severe burns (2nd or 3rd degree covering 30%+ of body), and coma for 15+ consecutive days. The payment amount depends on the severity and type of loss per the TSGLI Schedule of Losses.

How to claim: Complete form SGLV 8600 (Application for TSGLI Benefits). TSGLI pays a one-time lump sum — it is not an ongoing monthly benefit.

VALife — Veterans Affairs Life Insurance

VALife provides up to $40,000 in whole life insurance (in $10,000 increments) with guaranteed acceptance — no health exam or proof of good health required. This is a major option for veterans who cannot get private life insurance due to service-connected disabilities.

Eligibility: Any veteran age 80 or younger with any VA service-connected disability rating (including 0%). There is no time limit to apply. Veterans age 81+ must have applied for disability compensation before turning 81, received the rating after turning 81, and applied for VALife within 2 years of the rating notification.

Premiums: Based on your age at enrollment and fixed for life (no increases). Examples at $40,000 coverage: approximately $52.80/month at age 25, $130.00/month at age 50, $510.00/month at age 80. Monthly and annual payment options are available.

2-year waiting period: Full coverage begins 2 years after your application. If death occurs during the waiting period, beneficiaries receive total premiums paid plus interest. After 2 years, beneficiaries receive the full face value. VALife builds cash value after the 2-year waiting period.

S-DVI — Service-Disabled Veterans Life Insurance

S-DVI provides up to $10,000 in basic coverage, plus up to $30,000 in supplemental coverage if you are totally disabled and qualify for a premium waiver (total maximum: $40,000). You must apply within 2 years of VA granting a new service-connected disability using VA Form 29-4364. S-DVI requires being in good health except for service-connected conditions.

Note: S-DVI is being phased out in favor of VALife. Veterans should compare both programs — VALife offers guaranteed acceptance regardless of non-service-connected health issues, while S-DVI has a health requirement for non-SC conditions.

VMLI — Veterans' Mortgage Life Insurance

VMLI provides up to $200,000 in decreasing-term mortgage life insurance — paid directly to the mortgage lender upon death. Coverage decreases as your mortgage balance decreases. You must have received a Specially Adapted Housing (SAH) grant, the home must be your primary residence, and you must apply using VA Form 29-8636 before age 70.

VA Life Insurance Comparison

Key contacts: OSGLI (SGLI/VGLI/TSGLI) at 1-800-419-1473 | VA Insurance Center (VALife/S-DVI/VMLI) at 1-800-669-8477 | Apply online at benefits.va.gov/INSURANCE/apply-vgli.asp

VA disability compensation is completely tax-free at both the federal and state level. You do not report it as income on your tax return. This applies to all rating levels (10% through 100%), Special Monthly Compensation, and any retroactive back pay lump sums.

The Military Retirement Pay Offset

Military retirement pay (20+ years or medical retirement) is taxable. By law, for every dollar of VA disability compensation you receive, one dollar of retirement pay is "waived." The tax-free VA payment replaces that taxable portion, which actually reduces your taxable income.

Example: A veteran with $2,500/month retired pay and a 50% VA rating ($1,100/month) would have retired pay reduced to $1,400/month (taxable) and receive $1,100/month tax-free from VA.

CRDP — Concurrent Retirement and Disability Pay

CRDP restores the military retired pay that was reduced by the VA waiver, letting qualifying veterans receive both full retired pay and full VA disability compensation.

• Requires 20+ years of creditable military service
• Requires a VA disability rating of 50% or higher
• No application required — DFAS and VA automatically determine eligibility
• The restored retired pay is taxable (it is military retired pay, not VA compensation)

CRSC — Combat-Related Special Compensation

CRSC is a separate, tax-free payment for veterans whose disabilities are related to combat or combat-related activities (direct combat, hazardous duty, training accidents, instrumentalities of war like Agent Orange or military equipment injuries).

• Available to medical retirees (under 20 years) — unlike CRDP
• Minimum VA rating of 10%
• You must apply — file DD Form 2860 with your branch of service
• 6-year statute of limitations from your VA rating decision or retirement date

CRDP vs. CRSC Comparison

You cannot receive both CRDP and CRSC for the same disabilities — DFAS pays whichever is more beneficial. If your disabilities are combat-related and you have fewer than 20 years of service, CRSC may be your only option.

What Counts as "Combat-Related" for CRSC

Your disability must have resulted from one of these categories:

• Armed conflict — direct engagement with enemy or hostile forces
• Hazardous duty — demolition, flying, parachuting, diving
• War simulation exercises — live fire, hand-to-hand combat training
• Instruments of war — injuries from military vehicles, weapons, chemical agents (including Agent Orange), explosions
• Purple Heart — any injury for which a Purple Heart was awarded automatically qualifies

Applying for CRSC

File DD Form 2860 (Claim for Combat-Related Special Compensation) with your branch of service — not the VA, not DFAS. Include copies (not originals) of service medical records, After Action Reports, Purple Heart citations, DD-214, retirement orders, and your VA rating decision notice.

Time limit: File within 6 years of your VA rating decision or retirement eligibility date to receive full back payments. Claims filed after 6 years are limited to 6 years of retroactive payments. If your application is denied, you can request reconsideration if you receive a new combat-related disability rating or your existing rating changes.

State Taxes on Military Retirement Pay

As of 2026, approximately 37 states do not tax military retirement pay at all (including the 9 states with no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming). A growing number of states have added full exemptions in recent years.

Some states offer partial exemptions — for example, Virginia exempts $40,000, Georgia exempts $35,000–$65,000 depending on age, and Colorado exempts $15,000–$24,000. State tax laws change frequently, so check your state's current rules before filing.

Other Tax Considerations

• Property tax exemptions: Many states offer property tax reductions or full exemptions for disabled veterans — these vary widely by state. See our state benefits pages for details.
• Social Security: VA disability compensation does not count as income for Social Security calculations and does not reduce SSDI payments.
• Tax filing: Do not report VA disability compensation on your tax return. Retroactive back pay is also tax-free.
• Amended 1099-R: If your VA rating changes, your taxable retired pay from DFAS will adjust — watch for amended forms.

Key resources: va.gov/disability | dfas.mil/RetiredMilitary | CRSC info at dfas.mil

These are two separate VA benefit programs that are often confused. You cannot receive both at the same time — the VA pays whichever is higher.

Quick Comparison

2026 VA Pension MAPR (Maximum Annual Pension Rate)

The MAPR is the ceiling, not what you receive. Your actual pension = MAPR minus your countable income. Net worth limit for 2026: $163,699 (excludes your primary residence and personal vehicle).

Basic Pension Rates

With Housebound Benefits

With Aid and Attendance Benefits

Aid and Attendance

Aid and Attendance is an enhanced pension rate for veterans who need help with daily activities (bathing, eating, dressing), are bedridden, are in a nursing home, or have limited eyesight (5/200 or less in both eyes). Apply with VA Form 21-2680 — a physician must complete the medical portion.

When Pension Might Be Better Than Compensation

• You have a low or no service-connected disability rating
• You have very low income and served during a wartime period
• You need Aid and Attendance or Housebound benefits

When Compensation Is Better

• Service-connected disabilities rated 30% or higher
• Higher income or net worth (no limits for compensation)
• Additional benefits tied to disability rating (healthcare priority, property tax exemptions, etc.)

Key resources: va.gov/pension | Pension rates | Aid & Attendance info

If you owe money to the VA — from benefit overpayments, medical copays, or education debts — the VA has programs to help. You can view, pay, or request help with VA debts at va.gov/manage-va-debt.

VA Debt Relief Options

• Repayment plan: Set up monthly payments to pay off debt over time. Request within the time limit on your debt letter to prevent late fees, interest, and collection actions.
• Debt waiver: VA forgives some or all of your debt if repaying it would cause financial hardship. Request within 1 year of receiving your first debt notification letter. The Committee of Waivers and Compromises (COWC) evaluates whether the overpayment was your fault, whether recovery would be unfair, whether you changed your position in reliance on the benefits, and your financial hardship.
• Compromise offer: Propose a smaller, one-time lump-sum payment to settle the full debt. VA may accept when there is doubt about collecting the full amount, the cost of collection would exceed the recovery, or you demonstrate financial hardship.
• Dispute: If you believe the debt is incorrect, dispute within 30 days of the debt notification to prevent collection actions (wage garnishment, tax refund offset). Submit a written statement explaining the error.

VA Form 5655 (Financial Status Report)

This is the key form for any debt relief request — waiver, compromise, or extended payment plan (5+ years). It collects income, monthly expenses, assets and debts, employment information, and dependents. Submit online at va.gov/manage-va-debt/request-debt-help-form-5655 (fastest method) or mail to: Debt Management Center, PO Box 11930, St. Paul, MN 55111. For health care copay debt, submit to your nearest VA medical center instead.

What Happens If You Do Not Respond

VA has several collection tools: offsetting future VA benefits (compensation, pension, or education payments), referral to the U.S. Treasury for tax refund offset and wage garnishment, reporting delinquent debts to credit bureaus, and referral to private collection agencies. Responding within 30 days of your first debt letter is critical to prevent these actions.

Medical Copay Hardship

If you have lost your job, had a sudden decrease in income, or an increase in out-of-pocket healthcare expenses, a VA hardship determination can assign you to a higher priority group and exempt you from copays for the rest of the calendar year. Contact the VA Health Resource Center at 1-866-400-1238 or submit VA Form 10-10HS.

Military Lending Act Protections

The Military Lending Act (MLA) protects active-duty service members and their dependents from predatory lending. Key protections include:

• 36% interest rate cap on most consumer loans (payday loans, auto title loans, credit cards, installment loans)
• No prepayment penalties — pay off loans early without extra charges
• No mandatory arbitration — lenders cannot force you into arbitration
• No loan rollover traps — payday lenders cannot roll over loans unless terms improve

MLA protections apply primarily during service, but loans taken during service remain covered. The Consumer Financial Protection Bureau (CFPB) enforces the MLA — enforcement actions have delivered $183 million in restitution to servicemembers and veterans.

Predatory Lending Warnings

Veterans are frequently targeted by predatory lenders. Watch out for:

• Payday loans: 300%+ APR is common — designed to trap you in a cycle of debt
• Auto title loans: You risk losing your vehicle if you cannot repay
• "VA-approved" loan scams: The VA does not approve or endorse specific lenders
• Pension buyout schemes: Lump sums in exchange for future payments — almost always terrible deals
• High-pressure sales tactics: Legitimate lenders do not pressure you to sign immediately

Report predatory lending to the CFPB at consumerfinance.gov/complaint or call 1-855-411-2372.

Free Financial Counseling

• VA Veterans Benefits Banking Program (VBBP): Up to 3 free sessions with an Accredited Financial Counselor — budgeting, debt reduction, credit improvement. Call 1-855-598-1853 or visit benefits.va.gov/benefits/banking.asp
• Military OneSource: Free financial counseling within 365 days of separation. Call 1-800-342-9647 or visit militaryonesource.mil
• FINVET: National Veterans Financial Resource Center at mirecc.va.gov/visn19/finvet
• NFCC: Free or low-cost credit counseling nationwide at nfcc.org. Be cautious of for-profit "debt relief" companies that charge large fees.

Emergency Financial Assistance

If you are facing immediate financial crisis (unable to pay rent, at risk of homelessness, utilities shut off):

• VA Homeless Veteran Programs: 1-877-424-3838 or va.gov/homeless
• Army Emergency Relief: aerhq.org — loans and grants
• Navy-Marine Corps Relief Society: nmcrs.org — interest-free loans and grants
• Air Force Aid Society: afas.org — no-interest loans and grants (includes Space Force)
• Coast Guard Mutual Assistance: cgmahq.org
• United Way 211: Dial 2-1-1 for local financial assistance resources

VA Debt Management Center: 1-800-827-0648, Monday–Friday, 7:30 a.m.–7:00 p.m. CT | va.gov/manage-va-debt

VA provides an annual payment to veterans whose service-connected disability requires the use of prosthetic or orthopedic devices (wheelchair, brace, hearing aid, etc.) or prescribed skin medications that damage clothing beyond normal wear and tear.

2026 Amount

$1,053.19 per year (effective December 1, 2025 — 2.8% COLA increase). You may qualify for more than one clothing allowance per year if you have multiple prosthetic devices, use multiple skin medications, or your devices/medications affect different types of clothing.

Eligibility

You must meet both of the following:

• Your clothing is damaged beyond repair by a prosthetic/orthopedic device OR by a prescribed skin medication
• The device or medication is for a service-connected condition

Annual Deadline and Automatic Renewal

Apply by August 1 of the current year to receive payment for that year. Payments are issued between September 1 and October 31.

If you received a clothing allowance in a prior year, you no longer need to reapply every year for continued annual payments. However, you must apply if you want additional allowances for new devices/medications, your devices or medications have changed, or you are a first-time applicant.

How to Apply

Submit VA Form 10-8678 (Application for Annual Clothing Allowance) to your local VA medical center prosthetic representative in person or by mail, or mail to: Claims Intake Center, PO Box 4444, Janesville, WI 53547-4444.

VA provides two related benefits for veterans with severe service-connected disabilities that affect mobility or driving ability: a one-time automobile purchase grant and ongoing adaptive equipment grants.

Automobile Allowance

A one-time payment of up to $27,074.99 (effective October 1, 2025 — adjusted annually) toward the purchase of a specially equipped vehicle.

Qualifying service-connected disabilities (must have at least one):

• Loss or permanent loss of use of one or both feet
• Loss or permanent loss of use of one or both hands
• Permanent decrease in vision to 20/200 or less in the better eye (with corrective lenses)
• Visual field defect reducing peripheral vision to 20 degrees or less in the better eye
• Severe burn injury
• Amyotrophic lateral sclerosis (ALS)

A second automobile allowance is available only if the first vehicle was purchased 30+ years ago, or if a natural disaster destroyed the prior vehicle and insurance did not compensate.

Adaptive Equipment Grant

VA pays for vehicle modifications needed due to service-connected disability, including: power steering, power brakes, power windows and seats, wheelchair lifts and scooter carriers, hand controls, and other modifications as needed.

Eligibility includes all of the automobile allowance conditions above, plus ankylosis in one or both knees or hips (which qualifies for adaptive equipment only, not the automobile allowance). Unlike the one-time automobile allowance, adaptive equipment can be repaired, replaced, or reinstalled as needed on an ongoing basis.

How to Apply

Important: You must get VA approval before purchasing a vehicle or adaptive equipment.

Contact: 1-800-827-1000 (Mon–Fri, 8 AM – 9 PM ET)

Building an Emergency Fund

An emergency fund is the single most important first step in financial planning. Set aside money for unexpected expenses — car repairs, medical bills, job loss.

• Minimum goal: $1,000 as a starter emergency fund
• Recommended: 3 to 6 months of essential living expenses
• If income is unstable (transitioning, starting a business): aim for 6 to 12 months
• Keep it in a high-yield savings account — safe and accessible, not invested in stocks
• Set up automatic transfers, even $50/month. Direct lump-sum payments (separation pay, tax refunds) to the fund.

Understanding Your Credit Score

Your credit score affects mortgage rates, credit card approvals, apartment applications, car insurance rates, and sometimes job applications.

Credit Score Ranges (FICO)

What Affects Your Credit Score

Get your free credit report at AnnualCreditReport.com — the only federally authorized site. You are entitled to one free report every 12 months from each of the three major bureaus (Equifax, Experian, TransUnion). Review for errors and dispute them directly with the bureau.

VA Home Loans

One of the most powerful financial tools available to veterans. Key advantages:

• No down payment in most cases (conventional loans require 3%–20%)
• No private mortgage insurance (PMI) — saves $100–$300/month compared to conventional
• Competitive interest rates — typically 0.25%–0.50% lower than conventional
• Limited closing costs and no prepayment penalty
• VA funding fee: 2.15% first use (no down payment), 3.3% subsequent use. Exempt: veterans receiving VA disability compensation, Purple Heart recipients, surviving spouses.

See our Housing page for full details on VA home loans, IRRRL refinancing, adapted housing grants, and the Native American Direct Loan program.

Education Benefits as a Financial Tool

Your military education benefits can be worth $100,000+ over 36 months. Using GI Bill benefits instead of taking student loans saves you tuition, housing costs during school, and thousands in loan interest.

• Use GI Bill benefits before taking out student loans
• Consider in-state public schools for maximum tuition coverage
• If you have a service-connected disability, VR&E (Chapter 31) may cover education without using GI Bill months

See our Education page for full details on the Post-9/11 GI Bill, Montgomery GI Bill, Yellow Ribbon Program, STEM Scholarship, and transferring benefits.

Post-Separation Financial Checklist

Immediately After Separation

• Open a bank account if you do not have one (VBBP can help)
• Set up a budget — track every dollar for the first 3 months
• Start an emergency fund (even $25/month)
• Review your credit report at AnnualCreditReport.com
• Understand your VA benefits — disability compensation, healthcare, education
• Address your life insurance (SGLI to VGLI — see section above)
• Decide what to do with your TSP account (see section above)

Within the First Year

• Build emergency fund to at least 1 month of expenses
• Pay off high-interest debt (credit cards, payday loans) first
• Start using education benefits if pursuing school or training
• Explore VA home loan benefits if buying a home
• Set up retirement contributions (TSP, IRA, or employer 401(k))

Ongoing

• Emergency fund reaches 3–6 months of expenses
• All high-interest debt paid off
• Saving 10%–15% of income for retirement
• Annual credit report review
• Insurance coverage review (life, health, auto, renter's/homeowner's)
• Beneficiary designations up to date on all accounts

Common Financial Mistakes to Avoid

• Spending separation or retirement pay too quickly — create a budget before you spend
• Not filing for VA disability — even a 0% rating preserves future claims and provides healthcare access
• Cashing out your TSP — penalties and taxes can eat 30%+ of your balance
• Taking on high-interest debt — payday loans, title loans, and high-rate credit cards are traps
• Buying too much house — VA loans have no down payment, which means you could buy more than you can afford
• Not using free resources — free financial counseling, free credit reports, and VA programs exist for you
• Falling for scams — be skeptical of anyone offering to "get you more VA benefits" for a fee
• Letting SGLI lapse without a plan — especially if you have dependents

Key Resources