How a Military Member’s Life Insurance Policy Can Benefit a Beneficiary’s Retirement

By Jeffery Levine, IRA Technical Expert  

Follow Me on Twitter: @IRAGuru4EdSlott

This past Monday, our nation celebrated Memorial Day, a day dedicated to honoring the brave men and women who have lost their lives while serving in our Armed Forces. While no financial benefit can ever console or adequately compensate the families of those who have made the ultimate sacrifice, when a member of the Armed Forces dies, his or her loved ones are often the beneficiaries of a Service member’s Group Life Insurance (SGLI) policy. This is a tax-free life insurance benefit that can be up to $400,000. Though coverage amounts may vary (such as if a person has opted out of coverage), the following individuals are automatically insured under “full-time SGLI:”

• Active duty member of the Army, Navy, Air Force, Marines, or Coast Guard
• Commissioned member of the National Oceanic and Atmospheric Administration (NOAA) or the U.S. Public Health Service (USPHS)
• Cadet or midshipman of the U.S. military academies
• Member, cadet, or midshipman of the Reserve Officers Training Corps (ROTC) engaged in authorized training and practice cruises
• Member of the Ready Reserve or National Guard and are scheduled to perform at least 12 periods of inactive training per year
• Service member who volunteers for a mobilization category in the Individual Ready Reserve (IRR)

So you might be asking yourself, “what is an IRA website doing talking about SGLI benefits?” Well, believe it or not, there is actually a direct link between those SGLI benefits and Roth IRAs. Such benefits can be contributed to a Roth IRA, in their entirety, potentially turning the tax-free SGLI death benefit into a much bigger tax-free bucket of retirement account money. Should you or someone you know be an SGLI beneficiary, here are the key facts you need to know:

• You have one year, from the date you receive an SGLI death benefit, to rollover the funds to your Roth IRA.
• The annual IRA/Roth IRA contribution limits can be disregarded with respect to an SGLI death benefit. You may contribute all or any portion of that benefit to your Roth IRA.
• The SGLI benefit will go into your Roth IRA as a contribution, and can be withdrawn at any time, and for any reason tax and penalty-free.

The loss of a loved one is never an easy thing to deal with and understandably, financial matters may not be the top priority on family members’ lists. That said, the ability to contribute a tax-free SGLI benefit to a Roth IRA is usually a strong planning move and should not be overlooked.