The Importance of Tracking BAH and BAS Separately
As members of the Maine Air National Guard, you know that your compensation package includes more than just your base pay. Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS) are two essential components that play a significant role in your overall income. However, understanding the importance of tracking these allowances separately from your base pay is crucial for maximizing your financial well-being. In this post, we’ll discuss why tracking BAH and BAS separately is essential, covering topics such as tax implications, Roth contribution income thresholds, and savings rates.
- Tax Implications:
- BAH and BAS are typically not subject to federal income tax. However, if you track them combined with your base pay, it could cause you to think that you are in a higher tax bracket, resulting in more of your income being taxed, thus causing confusion in your tax planning.
- By tracking BAH and BAS separately, you can be more aware of what income is subject to federal income tax, as well as be better plan for present and future tax situations.
- Roth Contribution Income Thresholds:
- Roth contributions offer the advantage of tax-free withdrawals in retirement. However, there are income thresholds that limit your eligibility to contribute to a Roth IRA or Roth TSP.
- Tracking BAH and BAS separately allows you to accurately determine your taxable income, helping you stay within the income thresholds for Roth contributions.
- By contributing to Roth accounts when eligible, you can benefit from tax-free growth and withdrawals in retirement, enhancing your long-term financial security.
- Savings Rates:
- Tracking BAH and BAS separately enables you to establish a clear picture of your total income streams.
- By budgeting and allocating these allowances strategically, you can enhance your savings rate and achieve your financial goals more efficiently.
- Consider automating savings contributions from your BAH and BAS into retirement accounts or emergency funds to ensure consistent progress towards your objectives.
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Maximizing your military pay goes beyond your base salary. Understanding the significance of tracking Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS) separately can lead to various financial benefits, including reduced tax liability, eligibility for Roth contributions, and improved savings rates. As members of the Maine Air National Guard, leveraging these allowances effectively can enhance your financial well-being and contribute to a more secure future for you and your family. Stay informed, stay proactive, and make the most of your military compensation.
Avery Rock Financial, LLC is a registered investment adviser. The information in this material is for educational purposes only, is not intended to predict or guarantee future market performance, and is not intended to act as individualized tax, legal, financial, or investment advice. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed. Please consult a qualified attorney or tax professional for individualized legal or tax advice. Please contact a financial advisor for specific information regarding your individualized financial and investment planning needs.
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