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New Car Military Discounts – Save Thousands on a New Car

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Table of Contents
  1. New Car Military Discount Programs
    1. List of Military Discounts on New Vehicles
  2. Military Discounts on New Cars
    1. Acura Military Discount
    2. BMW Military Discount
    3. Military Discounts on Chrysler, Dodge and Jeep Vehicles
    4. Ford and Lincoln Military Discounts
    5. General Motors (GM)
    6. Honda Military Discount
    7. Hyundai Military Discount
    8. Kia Military Discount
    9. Mazda Military Discount
    10. Nissan Military Discount
    11. Subaru Military Discount
    12. Toyota Military Discount
    13. Volkswagen Military Discount
    14. Volvo Military Discount
  3. Military Discounts on Used Cars
    1. Hertz Military Discounts on Used Cars
    2. Avis Military Discounts on Used Cars
  4. Car Buying Services Also Make Car Buying Easy for Military Families

Buying a car is a significant investment. Safety, reliability and fuel efficiency all factor into the decision, but finances ultimately determine any car purchase.

Many auto retailers and dealerships offer significant military discounts and rebates.

Here’s a list of the most competitive military car discounts you should know about before negotiating your next vehicle purchase.

New Car Military Discount Programs

Many major car manufacturers offer new car discounts to military members and veterans. Depending on the manufacturer and dealership, you may be able to stack your discount with other offers and promotions.

How Much Car Can I Afford?

List of Military Discounts on New Vehicles

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Military Discounts on New Cars

You can find nationwide incentive programs for current and former military members at nearly every vehicle manufacturer. Manufacturers typically restrict these special deals to specific models, but they can save you hundreds – even thousands – on your new car purchase.

Read on to find out our favorite new car military discounts.

Acura Military Discount

Current and former military members can get $750 off a new Acura through Acura’s military appreciation program.

You must finance or lease the vehicle through Acura Financial Services (AFS) to get this discount. AFS may or may not have the best interest rates, so make sure you factor that into your decision and compare the total cost of the financing with offers from other lenders.

Acura Military Discount Eligibility

Active duty military, Reserves, National Guard, Coast Guard and retirees and veterans are all eligible for this offer. Spouses of members of each of these categories are also eligible. You are also eligible if you or your spouse is a veteran within one year of separation from active duty or you are a Gold Star family member.

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How to Get an Acura Military Discount

You must present proof of eligibility at the dealership. This may include an LES, military ID or a dependent or veteran ID card.

BMW Military Discount

BMW offers $500 to $2,000 in military incentives on many of its most popular models. However, these models change. Check with your local BMW dealership to see what’s currently eligible for a military discount.

You can use the BMW military discount in combination with other offers and sales programs, except for the BMW corporate sales program.

You can get special pricing on a BMW when you’re stationed overseas by purchasing your car through a BMW military sales agent.

If you require adaptive equipment for your BMW, you can get additional assistance through the BMW mobility program.

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BMW Military Discount Eligibility

BMW extends its military discount to:

  • Active duty service members
  • Military retirees
  • Reserves
  • Veterans
  • National Guard
  • USAA members
  • Immediate families members of the above

How to Get a BMW Military Discount

Head to the BMW military incentive page to start the discount process.

After ID.me verification, you’ll receive a unique promo code in your email.

Military Discounts on Chrysler, Dodge and Jeep Vehicles

The military incentive program provides a $500 discount on select Chrysler, Dodge, Jeep and Ram vehicles.

Military Incentive Program Eligibility

Here’s who is eligible for the discount:

  • Active-duty service members
  • National Guard service members
  • Reserve service members
  • Veterans with a 100% or “individually unemployable” VA rating
  • Honorably discharged veterans within 12 months of their discharge date
  • Retirees

Chrysler, Dodge and Jeep Military Incentive Program

Choose a vehicle, then click on the military incentive link for your vehicle’s manufacturer:

These links will show you available models and help you verify your military status through SheerID. Once you confirm your military status, you’ll receive a discount authorization number to take to the dealership.

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Ford and Lincoln Military Discounts

Ford offers a $500 exclusive cash reward on many of its 2022 and 2023 models, including:

  • Ford F-150 pickups
  • Ford Explorer
  • Ford Bronco Sport
  • Ford Expedition
  • Lincoln Nautilus

You can use this discount on up to five vehicles per year. The current offer expires on Jan. 3, 2023, but you can check Ford’s military appreciation page for more updates.

Ford and Lincoln Military Discount Eligibility

Ford offers these new car military discounts to active-duty military members, military retirees and veterans within 24 months of separation, according to Ford’s website. Military spouses, surviving spouses or other military household members are also eligible for Ford’s military discount.

How to Get a Ford or Lincoln Military Discount

To get the discount, confirm your eligibility through ID.me on the Ford military appreciation page. You’ll receive a certificate via email, which you can use when you shop online or at the dealership.

General Motors (GM)

General Motors offers eligible military members a military discount program for GM vehicles, including Buick, Cadillac, Chevrolet and GMC. The GM military discount program allows eligible military members to purchase vehicles at prices lower than MSRP. However, GM does not require dealers to participate in the GM military discount program, so check with your local dealer to find out if they particpate.

Many 2023 GM cars, SUVs, crossovers and light-duty trucks are eligible for the GM Military Discount Program.

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The standard GM military discount is $500 on most GM vehicles and up to $1,000 off on some Cadillac models.

GM Military Discount Eligibility

Veterans, Active-duty, National Guard and reserve service members are eligible for GM’s military discount, according to its website.

How to Get a GM Military Discount

You can verify your military service through ID.me on the GM military discount page. Once you verify your service, ID.me will give you an authorization number. Bring that number to the dealership to get your discount.

Honda Military Discount

Honda’s Military Appreciation Program provides a $500 rebate for qualified military members who finance or lease a vehicle using Honda Financial Services. All 2022 and 2023 Honda models are eligible for the discount, according to Honda’s website. The offer is good thorough April 3, 2023.

Honda Military Discount Eligibility

Active-duty, National Guard, reserve and retired service members are eligible for Honda’s military discount. Veterans who are within one year of separation from active duty, military spouses and Gold Star family members are also eligible.

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How to Get a Honda Military Discount

You must show proof of eligibility at the dealership, such as a military or dependent ID card, LES or veteran identification.

Hyundai Military Discount

Hyundai offers a $500 additional military discount toward the purchase or lease of a new Hyundai. The current version of this offer is good through Jan. 2, 2023.

Hyundai Military Discount Eligibility

Veterans, active-duty, National Guard, reserve and retired service members are eligible for Hyundai’s discount program.

How to Get a Hyundai Military Discount

Provide proof of your military service or dependent status when you ask for a discount at the Hyundai dealership.

Kia Military Discount

The Kia military discount offers $400 off select new Kia models. The models vary by dealership, so contact your local Kia dealer for specifics.

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Kia Military Discount Eligibility

Kia offers military discounts to active duty, National Guard, Reserves, military retirees, and veterans with a disability rating (any level). Spouses of people in any of these categories are also eligible for the discount.

How to Get a Kia Military Discount

You must take proof of military service or military disability status to a participating dealer to get your $400 Kia military discount.

Mazda Military Discount

Mazda currently offers a $500 Cash Military Appreciation Bonus for military members, including spouses and children of those who qualify. You can combine this program with public offers, including lease offers, customer cash back and APR incentives, and the Mazda Financial Services Lease Loyalty Reward or Mazda Loyalty Reward programs.

Mazda Military Discount Eligibility

Active-duty, National Guard, reserve and retired service members are eligible for the discount. Veterans within 24 months of separation and military family members are also eligible.

How to Get a Mazda Military Discount

Just go to a Mazda dealership with proof of service to redeem your discount.

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You can read more about the discount here.

Nissan Military Discount

Nissan gives military discounts to qualifying current and former service members. These vary between $500 and $1,000. 

Nissan allows eligible military members and veterans to use their discounts in conjunction with other regional and national Nissan incentives, according to the Nissan website

Several new Nissan models qualify for the military discount program, including:

  • 2023 Nissan Rogue
  • 2022 Nissan Sentra
  • 2023 Nissan Frontier
  • 2023 Nissan Titan

Nissan Military Discount Eligibility

Nissan offers military discounts to active-duty, National Guard and reserve service members. Retirees with at least 20 years of service and veterans within 24 months of separating are also eligible.

To find out more, check out Nissan’s military discount page

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Nissan Military Discount Eligibility

Active-duty, National Guard, reserve and retired military members are eligible for this discount. Veterans within 24 months of separation also qualify for Nissan’s military discount.

How to Get a Nissan Military Discount

To receive the discount, you must present proof of your military service at your local dealership. Acceptable documentation includes a copy of your LES, military ID or a DD-214.

Subaru Military Discount

Subaru offers a $500 military discount towards vehicle purchases, which you can combine with other offers.

Subaru Military Discount Eligibility

Active-duty National Guard, reserve and retired military members are eligible for Subaru’s military discount. Veterans who are within 12 months of separation from active duty also qualify.

Subaru Military Discount Details

Contact your local Subaru dealership or the Subaru VIP Program Headquarters at [email protected] or 1-800-VIP-0933.

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Toyota Military Discount

The Toyota Military Rebate Program offers a $500 rebate for eligible military members.

Toyota Military Discount Eligibility

Active-duty military members and their household family members, Gold Star family members, military retirees and veterans who are within 24 months of separating can use Toyota’s military rebate program.

Toyota Military Rebate Process

Bring your Leave and Earnings Statement (LES), Military ID or DD-214 to the Toyota Dealership when you buy your vehicle.

The discount is available on any vehicle you purchase or lease through Toyota Financial Services. You might be able to find loans at lower interest rates outside of the dealership, so check the total cost to finance your purchase with other lenders before you buy.

You can find more details on Toyota’s national page or by contacting your local dealership.

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Volkswagen Military Discount

The Volkswagen military discount can save you $500 off the purchase or lease of select new Volkswagen models.

Volkswagen Military Discount Eligibility

Active-duty, National Guard, reserve and retired service members, military household members, first responders and veterans within 24 months of separation can get the $500 Volkswagon discount.

Dealership participation may vary, so contact your local dealership for details.

Volvo Military Discount

Volvo’s Military Offer can save you up to $500 on a new or “certified by Volvo” pre-owned purchase or lease.

Volvo Military Discount Eligibility

Active-duty, National Guard and reserve service members, veterans and military family members are eligible for the military discount offer, according to Volvo’s website.

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Volvo Discount Process

To redeem a Volvo military discount:

  1. Click “register now” on the Volvo military offer page.
  2. Verify your status through ID.me from that link. After successful verification, you will get a pin. Be careful not to use that pin, as you can only get two per year.
  3. Choose a Volvo model.
  4. Take your pin to a participating Volvo retailer to close the deal. You can find participating deals on Volvo’s military page.

Volvo’s Overseas U.S. Military Program

Volvo also has an overseas military program, which offers Volvo vehicles at prices significantly below the manufacturer’s suggested retail price (MSRP), according to the Volvo website. Overseas U.S. diplomats are also eligible.

Volvo will deliver your new vehicle to an approved military sales agent or fly you to its factory delivery center in Sweden to pick up the vehicle. They’ll even pay for your hotel and ship your car back when you move back to the United States.

Military Discounts on Used Cars

You can get a military discount on many used cars, as well.

Note: If your local used car dealer isn’t listed below, don’t be afraid to ask a customer service representative if the dealership offers one – the worst they can say is no.

Hertz Military Discounts on Used Cars

Ever wonder what rental car companies do with prior-year models? They sell them, of course. You can find deals on used cars through Hertz Car Sales.

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Current and former military members can take $350 off Hertz’s best price using the promo code “MILITARY” for online or in-store purchases.

Avis Military Discounts on Used Cars

Veterans Advantage members can get a $200 discount off the best price of Avis used cars. After you find your car through the Avis website, bring your Veterans Advantage coupon code to the dealership for a discount.

Car Buying Services Also Make Car Buying Easy for Military Families

USAA offers the USAA Car Buying Service through TrueCar.

TrueCar also offers a military program.

Both services make it easy to buy a car at a prearranged price so you can avoid haggling with dealerships. Some of these purchases may allow you to stack military discounts, while others may not: check with your dealership for more information.

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You can also get quotes from local dealerships through websites like Edmunds, which allows you to quickly compare offers from multiple dealerships, reducing the time it takes to find a new car at an attractive price.

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Personal Finance

Our favorite Black Friday discounts in 2022

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Academy Sports Veterans Day Deal

The Academy offers a discount to active duty military members, veterans, and first responders. It’s our way of showing gratitude and appreciation for all you do to protect our nation and serve our local communities. Get 10% off your entire purchase online or in store.

Bass Pro Shop Military Discount

5% off military and veterans every day, both in-store and online. Bass Pro Shops will be increasing their military discount to 10% on Veterans Day, 11/10 – 11/13. The verification process is available on the Bass Pro Shop website and by phone. The discount now also applies to firearms and ammunition purchases and can be combined with other sales and promotions for even greater savings. Further information.

Buffalo Wild Wings Veterans Day Deal

Throughout Veterans Day, Veterans and active duty military who dine at their local B-Dubs can receive a free order of boneless wings and a side of fries. Only in participating US locations.

Goodyear tyres

All active, former and retired military members and first responders are encouraged to take advantage of Goodyear’s free tire, brake and battery inspections and will receive an additional 10% off tires and services. Eligible guests presenting a valid ID can schedule car inspection appointments between November 10-14 and redeem through November 17.

Home Depot Military Discount

The 10% military discount is available daily for active duty and retirees, but not for all veterans. The Home Depot® makes this offer available to all veterans on major military holidays, including Memorial Day, Veterans Day and July 4th. Home Depot is offering all Active Duty, Reservist, Retired Military, Veterans, and their families (with ID) a 10% discount on their purchases in honor of Veteran’s Day. Certain restrictions may apply.

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IHG hotels

With the holidays just around the corner, InterContinental Hotel Group is proud to offer a 5% discount to military personnel, veterans and their families. IHG is one of the largest hotel chains in the world, with more than 6,000 hotel properties from brands such as Holiday Inn, Candlewood Suites, Staybridge Suites, Hotel Indigo and others.

Lowe’s Military Discount

Lowe’s Companies, Inc. will offer all active, reserve, honorably discharged, retired military personnel and their immediate family a 10% discount on U.S. store purchases made during the Veterans Day holiday. The discount is available on stock purchases and special orders up to $5,000. To qualify, individuals must present valid military ID or other proof of service. Sales through Lowes.com, prior sales, and purchases of services or gift cards are excluded from the discount. Lowes offers this discount every day to military members and active duty veterans.
Lowes.com – Find exclusive discounts

Microsoft military discount

The Microsoft Home Use Program allows current military members and Department of Defense workers to purchase Microsoft Office at a discounted rate. Please note that this offer is only available to current military members and those working for select companies and organizations participating in the Microsoft Home Use Program. Learn more about the Microsoft Office military discount.

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Coverage, enrollment, and cost basics

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Whether you’re on the reservations or in the National Guard, your Tricare health care options vary depending on your state.

When activated for more than 30 days, you’ll get the same free Tricare Prime coverage that applies to all active duty members. But what about the rest of the time?

You may already have an employer-based insurance plan, but what if you lose your job? If you don’t have a business plan, Tricare Reserve Select offers a good alternative to buying expensive health insurance on the open market.

Fortunately, with Tricare Reserve Select, members of select reserves have access to low-cost premium insurance. Here’s a guide to Tricare Reserve Select to help you determine if the program is right for your family.

Summary
  1. What is Tricare Reserve Select?
  2. Five things to know about Tricare Reserve Select
  3. Eligibility and costs
    1. Am I eligible for Tricare Reserve Select coverage?
    2. Tricare Reserve Select costs
  4. Membership basics
    1. First registration
    2. New subscription after activation
  5. Important Reserve of Tricare Select Resources
  6. Advantages and disadvantages
    1. Tricare Reserve Select: Benefits
    2. Tricare Reserve Select: Disadvantages
  7. Summary: Tricare Reserve Select is an easy and affordable health care option

What is Tricare Reserve Select?

Tricare Reserve Select is a premium health plan available to non-activated Reserves, National Guard members and their families.

You can use Tricare Reserve Select insurance anywhere in the world.

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Tricare Reserve Select is similar to commercial health insurance in that it has copays, deductibles and premiums.

A unique feature of Tricare Reserve Select is that you don’t have to wait for Tricare’s open season to sign up or change your plan, according to the Tricare website. It is a premium plan, when activated for more than 30 days, you can easily switch your coverage to a Tricare Prime program, including Tricare Prime, Tricare Prime Remote, Tricare Prime Remote Overseas or Tricare Overseas. You can also transfer family members to a standard, remote or overseas Tricare Prime or Tricare Select, Tricare Young Adult, or US Family Health Plan.

Five things to know about Tricare Reserve Select

  1. Convenience: Compared to other comprehensive health plans on the open market, this is a low-cost option for Select Reserve members. Unlike many health insurance plansTricare Reserve Select also covers you when you are abroad.
  2. Based on Premium: Unlike other Tricare plans, you must proactively purchase Tricare Reserve Select. Members pay monthly premiums as well as an annual deductible and co-pays.
  3. Freedom of choice: You will not have to see a primary care manager (PCM) or need a referral for any health care with Tricare Reserve Select, according to the Tricare website. Choosing in-network providers will reduce your out-of-pocket costs.
  4. Qualifications: Tricare Reserve Select is only available to select reserve members who are not eligible for the Transition Care Management Program or the Federal Employee Health Benefits Program. You cannot join or stay in the plan if you are on active duty.
  5. Coverage gaps: To avoid coverage gaps when transitioning between active service orders and inactive status, call Tricare to verify your enrollment before using your insurance, if possible.

Eligibility and costs

Am I eligible for Tricare Reserve Select coverage?

If you are in Select Reserves and are not on active duty, you are eligible for Tricare Reserve Select.

You are not eligible for Tricare Reserve Select if:

  • You are eligible for the Transition Care Management (Service Members Leaving From Service) program.
  • You are concurrently a civilian employee and are eligible for the federal employee health benefits program.
  • You are a member of the Individual Ready Reserve (IRR), including Navy Volunteer Reserve (VTU) training units.

Retired reservists are not eligible for Tricare Reserve Select but can upgrade to Tricare Retired Reserve. Here are the health care options for retired reservists. Once retired reserve and National Guard members reach the age of 65, they will become Tricare for Life eligible.

Note: Compare costs and coverage options between Tricare Reserve Select and any employer-based option before making your final health care plan decision.

Tricare Reserve Select costs

As a premium-based health plan, the primary costs of Tricare Reserve Select are monthly premiums, an annual deductible, and co-payments for services covered by Tricare.

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Premium monthly rates for 2023 are $48.47 for individual plans and $239.69 for family plans. Quarterly costs are $1,654 for individual plans and $4,134 for family plans.

Cost shares range from $16 to $68 for covered network outpatient services. For visits outside the network it is necessary to pay a fee of 20%.

There’s also an annual deductible, which varies depending on your degree. For those in the junior enlisted ranks (E1-E4), the 2022 deductible is $56 for an individual and $112 for a family, according to the Tricare Reserve Select cost tab. Service members who are E-5 and above have an individual deductible of $168 or a family deductible of $336.

Note: Although Tricare has announced 2023 premiums, it has yet to announce deductibles and cost allowances for Tricare Reserve Select 2023 as of mid-November 2022.

Membership basics

First registration

If eligible, you can purchase Tricare Reserve Select coverage by phone or on line to at any time of the year. Enrolling yourself or your family in any Tricare plan requires an up-to-date DEERS profile.

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To obtain coverage, eligible service members will need to complete a Backup Component Medical Coverage Request Form, which you can complete here. You must also make a premium payment to the appropriate one Tricare Regional Contractor.

New subscription after activation

Once activated, Reservists and National Guard members become eligible for Tricare Prime. Family members can choose from Tricare Prime, Prime Remote, and Tricare Select. To see which is best for you, check out our article comparing Tricare Prime and Tricare Select.

When you deactivate, you re-enroll in Tricare Reserve Select. If not, you and your family may have a gap in health coverage. To re-register, follow the same registration steps listed above.

Important reserve of Tricare select resources

The regional contractors for Tricare Reserve Select are:

Advantages and disadvantages

With its low cost and worldwide accessibility, Tricare Reserve Select has clear advantages for many Select Reserve members.

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Tricare Reserve Select: Benefits

  • Global coverage: This plan is available to eligible beneficiaries worldwide. Additionally, beneficiaries may seek medical care at military treatment facilities based on available space.
  • Freedom of choice: Beneficiaries can choose from any provider authorized by Tricare. Selecting in-network providers will reduce your out-of-pocket costs.
  • Unsolicited Referrals: While many health insurance options provide PCM referrals, they are not required to seek health care with Tricare Reserve Select.
  • Affordable support: This plan is more affordable than many comparable health care offerings in the civilian market.

Tricare Reserve Select: Disadvantages

  • Activation and deactivation headaches: You must call Tricare to enroll in Tricare Prime when you activate, then switch back to Tricare Reserve Select again when you deactivate. While this should be a seamless transition, problems or delays with your orders can create gaps in coverage.
  • Federal Employees: If you are simultaneously a federal employee and eligible for the Federal Employee Health Benefits Program, you cannot get Tricare Reserve Select. Federal employees who are otherwise eligible for Tricare Reserve Select will be able to purchase it starting January 1, 2030, according to recent legislation.

Summary: Tricare Reserve Select is an easy and affordable health care option

Tricare Reserve Select is a partially subsidized health care program that can save select reserve members money, compared to employer-based and market-based health care plans.

Your civilian employer may offer something better, but if not, consider Tricare Reserve Select for health coverage for you and your family.

This is Ryan Guina, the founder of Personal Finance speaking. Switching from Tricare Reserve Select to Prime and back usually goes smoothly, but not always. I once had an almost two month outage in coverage due to a problem with my orders when I went off active duty. The Tricare customer service representative I spoke with was understanding, and Tricare backdated one of my claims that occurred during this transition period. But it could have turned out differently if I hadn’t been paying attention. Track dates on your orders during transition periods. If possible, double check your enrollment status before using your insurance after changing status. If you have any issues, please call Tricare to report the issue and file a case as soon as possible.

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Personal Finance

2022 Roth IRA Rules – Why You Need a Roth IRA

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Table of Contents
  1. Roth IRA – One of the Best Retirement Tools
  2. Types of IRAs and Why a Roth IRA Rules
    1. Here is a Primer on Traditional and Roth IRAs
  3. Roth IRA Eligibility Requirements
  4. 2023 Roth IRA Income Limits
    1. What to Do if Your Income Exceeds Roth IRA Contribution Limits
  5. Roth IRA Contribution Limit Rules
  6. Roth IRA Distribution Rules
    1. Exceptions for Early Roth IRA Withdrawals
  7. Roth IRA Conversions
    1. Deductible and Nondeductible Traditional IRAs
    2. Tax Implications of the Roth IRA Conversion Process
    3. The Pro-Rata Rule for Backdoor Roth IRAs
    4. Taking Advantage of Roth Conversions (Timing Is Everything)
    5. Who Is Eligible for Roth IRA Conversions?
    6. Options for Converting Traditional IRAs into Roth IRAs
  8. Comparing Roth IRAs to Other Retirement Plans
    1. Comparing Roth IRA to Traditional IRA
    2. Comparing Roth IRA to Traditional 401(k) Plans
    3. Where to Invest — 401(k) or IRA?
    4. Should You Contribute to a 401(k) Without an Employer Match?
    5. How Many Retirement Accounts Can You Have?
  9. Who Should Open a Roth IRA?
    1. Why Young People Should Open a Roth IRA
    2. Why Military Members Should Open a Roth IRA
  10. Getting Started With a Roth IRA
  11. How to Invest Your Roth IRA Funds
  12. Maximize Your Roth IRA Contributions
    1. Benefits of Automatic Contributions

Roth IRAs allow investments to grow tax-exempt until retirement and offer tax-free withdrawals. 

These tax-advantaged individual retirement accounts offer varied investment opportunities and exceptional tax benefits.

You contribute to a Roth IRA with money you already paid taxes on. The money compounds tax-free, and you can make tax-free withdrawals at age 59½. 

Additionally, there are no required minimum distributions (RMDs), meaning you don’t need to make withdrawals by a certain point. You can withdraw investments without paying additional taxes or defer withdrawals until you are ready.

Why You Need a Roth IRA
Roth IRA – one of the best retirement plans available

Everyone needs to plan for their retirement. Even if you serve in the military long enough to earn a pension, it might not be enough for your golden years. 

Retirement accounts such as the Thrift Savings Plan, 401(k) plans and IRAs are great ways to take your retirement planning into your own hands.

Types of IRAs and Why a Roth IRA Rules

Most people have two types of IRAs available to them – traditional IRAs and Roth IRAs. While similar, there are differences in paying taxes on contributions and withdrawals.

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Here is a Primer on Traditional and Roth IRAs

  • Traditional IRA: Contributions are tax-free if you meet income requirements, and withdrawals are taxed in retirement years. There are required minimum distributions once you reach age 72.
  • Roth IRA: Contributions are made from already-taxed income, and withdrawals in retirement are tax-free. There are no required minimum distributions.

Let’s break this down in simple terms.

With a traditional IRA, you can take a tax break on your income now, but you will have to pay taxes when you withdraw retirement funds. You must also withdraw from your account once you reach the required minimum distribution age, regardless of your income needs.

With a Roth IRA, you make contributions from income that was already taxed, making you eligible for tax-free withdrawals in retirement.

This is a great deal, especially if you are in a lower tax bracket than you anticipate being in retirement. It also takes the guesswork out of retirement planning, since you know the money in your account is not taxable.. Finally, you aren’t required to take distributions, so you can leave money in your account and continue to let it grow. (This can also be advantageous for estate planning.)

Roth IRA Eligibility Requirements

There are two main Roth IRA eligibility requirements:

  • You must have earned income. 
  • You must meet income requirements.

The earned income must be taxable and can include wages and salaries, tips, bonuses and other compensation related to services you’ve provided. Income from interest, dividends or other investments does not qualify as earned income for Roth IRA purposes.

Note: Military members have a special provision. The Heroes Earned Retirement Opportunities (HERO) Act allows military members with tax-free combat pay to contribute to Roth IRAs and other retirement plans.

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2023 Roth IRA Income Limits

There are caps on earnings and contributions to a Roth IRA. 

For the 2023 tax year, Roth IRA eligibility begins phasing out at an annual modified adjusted gross income (MAGI) of $138,000 for single tax filers. Single tax filers are ineligible to make Roth IRA contributions when their income reaches $153,000. The limits are higher for married filing jointly, with eligibility phasing out starting at $218,000 and ending at $228,000.

The following table breaks down Roth IRA income limits.

Filing Status Modified AGI Allowable Contribution
Married filing jointly or qualifying widow(er) $218,000 or less Up to the annual contribution limit
More than $218,000 but less than $228,000 Partial amount
$228,000 or more No contribution
Married filing separately and you lived with your spouse at any time during the year Less than $10,000 Reduced amount
$10,000 or more No contribution
Single, head of household or married filing separately and you did not live with your spouse at any time during the year $138,000 or less No contribution
More than $138,000 but less than $153,000 Partial contribution
$153,000 or more No contribution

What to Do if Your Income Exceeds Roth IRA Contribution Limits

The tax advantages for IRAs are generous, so the federal government limits them to people who fall within certain income brackets. Suppose you don’t meet income requirements to get the tax benefits from the traditional IRA or contribute directly to a Roth IRA. In that case, you can contribute to a nondeductible traditional IRA and convert it to a Roth IRA later. It’s like a back door that enables anyone to contribute to a Roth IRA, regardless of their MAGI.

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More on this below.

Roth IRA Contribution Limit Rules

The next thing to consider is how much you can contribute to your Roth IRA. 

If you meet income requirements, then you can contribute up to $6,500 for 2023 if you are younger than age 50. 

If you’re age 50 or older you can contribute $7,500. (The additional $1,000 represents a catch-up contribution to help those closer to retirement better reach their investment goals.) 

Contribution limits for both Roth and traditional IRAs are the same, and the limits apply to all your IRAs for the specified tax year. Make sure you don’t exceed your contribution limits across both accounts.

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The following chart shows IRA contribution limits for 2002-2023.

Tax Year Contribution Limit
Age 49 or Younger
Catch-Up Contribution
Limit Age 50 or Older
Contribution Limit
Age 50 or Older
2023 $6,500 $1,000 $7,500
2019 – 2022 $6,000 $1,000 $7,000
2013 – 2018 $5,500 $1,000 $6,500
2008 – 2012 $5,000 $1,000 $6,000
2006 – 2007 $4,000 $1,000 $5,000
2005 $4,000 $500 $4,500
2002 – 2004 $3,000 $500 $3,500

Roth IRA Distribution Rules

Distributions are among the main benefits of using a Roth IRA instead of a traditional IRA. Distributions from Roth IRAs are tax-free, whereas traditional IRA distributions are taxable. In addition, there is no required minimum distribution age with a Roth IRA.

While you can withdraw contributions at any time, tax-free and penalty-free, that does not apply to earnings or interest on your contributions.

To avoid paying penalties on Roth IRA withdrawals for earnings or interest, you must wait at least five years from the date you contributed the funds and be at least 59½ years old.

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This is called the five-year rule.

Exceptions for Early Roth IRA Withdrawals

There are exceptions to the Roth IRA withdrawal rules in certain situations. For example, you may be able to make penalty-free withdrawals if you become disabled, want to purchase your first home or pay for qualified educational expenses. 

Read more about Roth IRA withdrawal rules and consult with a financial planner or tax professional before making any early Roth IRA withdrawals.

Early Roth IRA withdrawals not qualified under Internal Revenue Service (IRS) rules may be subject to a 10% early withdrawal penalty.

Roth IRA Conversions

Moving money from a traditional IRA into a Roth IRA is called a Roth IRA conversion. 

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Many people choose to do Roth IRA conversions because Roth IRAs have tax advantages over traditional IRAs. Roth IRA distributions are not considered taxable income. The lack of required minimum distributions also gives Roth investors more long-term flexibility.

Deductible and Nondeductible Traditional IRAs

There are two types of conversions: conversions from deductible traditional IRAs and conversions from nondeductible traditional IRAs.

Deductible IRAs are those where you deduct the contribution on your taxes.

Nondeductible IRAs are those without a corresponding tax deduction. People whose income exceeds the traditional IRA and Roth IRA income limits may use these.

Tax Implications of the Roth IRA Conversion Process

During the conversion process, you add the money from a traditional IRA that you rolled into a Roth IRA to your annual taxable income for that year. It’s taxable income because you did not pay taxes on contributions or earnings. The IRS still needs to assess taxes on that income and its gains. So, you pay when you convert and file your taxes the following year.

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Nondeductible IRA conversions are not taxable income, as you did not receive a tax deduction for the original contribution. However, you will pay taxes on any nondeductible IRA gains when you convert to the Roth IRA.

To avoid taxable gains, convert a nondeductible IRA to a Roth IRA as soon as possible after opening it. This is called a backdoor Roth IRA.

The Pro-Rata Rule for Backdoor Roth IRAs

The IRS requires taxpayers who convert traditional IRAs to Roth IRAs to convert them on a pro-rata basis. That means that if you also have deductible IRAs, you can’t only convert your nondeductible IRAs to a Roth IRA. You must convert them proportionately, based on the total value of all your IRAs. This way, the IRS receives taxes at the time of conversion. IRS Form 8606 will walk you through the math.

This is an advanced matter worth investigating with a tax professional or fee-only financial planner.

Related:

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Taking Advantage of Roth Conversions (Timing Is Everything)

When you pay taxes on the money you roll over, you pay taxes on the current value of the money. That means you can take advantage of economic downturns or your current tax bracket.

Future distributions from newly created Roth IRAs are the same as any other Roth IRA – they are nontaxable.

Investors currently in a low tax bracket often invest in Roth IRAs because they expect to be in a higher tax bracket when they retire. This is common for those who have recently retired or are between jobs.

Many people convert a traditional IRA into a Roth IRA when the economy struggles because their traditional IRA has less value, resulting in a lower taxable amount.

Who Is Eligible for Roth IRA Conversions?

Most people are eligible to convert a traditional IRA into a Roth IRA. However, you cannot convert a traditional IRA if you inherited it from someone other than a spouse.You can convert traditional IRAs to Roth IRAs even if you have made a rollover within the same year, according to the IRS.

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Options for Converting Traditional IRAs into Roth IRAs

There are two ways to move money from a traditional IRA into a Roth IRA.

  • You can convert the funds yourself by taking a distribution from the traditional IRA and rolling it into a Roth IRA within 60 days.
  • You can instruct the bank or broker who manages your traditional IRA to transfer the money into a Roth IRA for you.

Most investment firms are happy to initiate and process the Roth conversion or rollover for you. This is typically the easiest and safest method since you avoid potential mistakes or penalties.

For example, if you cash out your IRA without rolling the IRA funds into your new IRA within 60 days, it is treated as a withdrawal instead of a conversion. Also, you would owe taxes on the total amount plus penalties if you are younger than 59½.

Whether you roll over or transfer funds, it’s necessary to use the entire traditional IRA distribution amount to fund the Roth IRA to avoid early withdrawal penalties and fees. You cannot keep any of the money as cash.

Comparing Roth IRAs to Other Retirement Plans

Roth IRAs offer different benefits than other retirement plans or taxable investments. The most important benefits of investing with a Roth IRA are:

  • Tax-free withdrawals during retirement
  • No required minimum distributions, so you can let your money compound for longer periods
  • Ability to make tax-free and penalty-free withdrawals of your contributions at any time

Comparing Roth IRA to Traditional IRA

There are several similarities between traditional and Roth IRAs, including where you can open them and often the contribution limits. There are also income limits for tax-deductible traditional IRAs and Roth IRA contributions, so be sure to read up on the IRA contribution limits page for more information.

There are also differences between these two retirement accounts.

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The fundamental differences between traditional and Roth IRAs boil down to how and when the money is taxed and how and when you can make withdrawals.

Traditional IRA contributions may be tax deductible, and the funds are taxed when you make a withdrawal. Roth IRA contributions have already been taxed, and withdrawals and qualified distributions are tax-free.

The next major difference is how and when you make withdrawals. Traditional and Roth IRAs list age 59½ as the minimum age requirement for penalty-free withdrawals. You can also make qualified distributions on your earnings penalty-free and tax free at this age as long as your Roth IRA has been open for at least five years.

However, traditional IRAs require account holders to make minimum required distributions once they reach age 72. Otherwise, they face stiff tax penalties.

Roth IRAs do not have required minimum distributions. You can read more about these two plans in the article: Comparing Roth IRA vs. Traditional IRA.

Comparing Roth IRA to Traditional 401(k) Plans

Some companies offer traditional 401(k) plans and Roth 401(k) plans. The Roth 401(k) has similar benefits to a Roth IRA but follows the contribution limits for 401(k) plans. Traditional 401(k) plans are closer to traditional IRAs, as they offer a current tax deduction, with taxable withdrawals in retirement age. All 401(k) plans also have a required minimum distribution age. Unlike a Roth IRA, the Roth 401(k) requires participants to take required minimum distributions once they reach the required age.

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Where to Invest — 401(k) or IRA?

People often ask where to invest first – 401(k) or IRA. A traditional 401(k) plan is usually better if your employer offers a company match on your investment.

Take the free money, then contribute to the Roth IRA if you can afford to contribute beyond that.

How Many Retirement Accounts Can You Have?

You can have several retirement accounts, including a 401(k), 403(b), Thrift Savings Plan or IRA. You may also have a self-employed retirement plan.

However, the IRS lumps IRAs and retirement plan accounts together. So be careful to stay within annual contribution limits for IRAs and other retirement plans.

Who Should Open a Roth IRA?

A Roth IRA is a great investment option if you’re in a lower tax bracket now than you expect for the future. 

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You can pay taxes at a lower tax rate, then make tax-free withdrawals when you reach retirement age.

Why Young People Should Open a Roth IRA

Income potential in most career fields grows over time, so young people who start their careers in a low tax bracket have the most to gain from opening a Roth IRA.

Why Military Members Should Open a Roth IRA

Military members can make tax-free Roth contributions in a war zone, then make tax-free withdrawals in retirement. 

This means your contributions, growth and withdrawals are all tax-free.

Some military members may qualify for additional time to contribute to their Roth IRA beyond the normal cutoff date if their military duties permit a tax extension. 

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Military Members Should Open Roth IRAs.

Getting Started With a Roth IRA

Opening a Roth IRA is easy and takes only 10-15 minutes. Simply go to the bank or brokerage company you wish to do business with, fill out some paperwork and initiate a money transfer.

If you want to read more on Roth  IRAs first, check out these articles:

How to Invest Your Roth IRA Funds

How you invest your money is a personal decision. Consider your other current investments, desired asset allocation, investment timeline and risk tolerance.

That said, some investments are best suited for a Roth IRA in the context of your overall investment portfolio. Because of the Roth IRA’s unique tax rules, you won’t pay taxes on any growth in the funds in your Roth IRA. Look for funds that maximize your growth potential in your Roth IRA.

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Conversely, consider investing in funds with lower growth potential in your traditional retirement accounts because you will pay taxes on those funds when you withdraw them at retirement age.

That generally means placing equities (stocks) in a Roth account and bonds and fixed income in a traditional account. This isn’t a hard-and-fast rule, and you may have to adjust as your portfolio grows. But, thinking about the long-term growth of the funds in your retirement accounts is very important.

Maximize Your Roth IRA Contributions

The 2023 maximum contribution limit for a Roth IRA is $6,500 per year or $7,500 for those older than 50.

Most people can’t contribute $6,500 at once, which is OK. A great way to invest is to set up automatic investments in your Roth IRA account.

Determine how much you can afford each month and automatically contribute that amount. If you want to max out your Roth IRA contributions each year, you must contribute about $541 per month ($625 if you are older than 50).

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Benefits of Automatic Contributions

Making automatic contributions guarantees you’ll stick to your monthly IRA savings goals. 

You can also take advantage of dollar cost averaging, which ensures you will buy more investments when values are low, and fewer when values are high. Hopefully, your investment growth will average out in your favor in the long run. 

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