Basic Allowance for Housing (BAH) - it is a huge benefit of military service, and it is the biggest reason why you should take terminal leave and not sell your leave back. BAH is also the allowance that causes the most confusion in general - no coincidence!
Per your advice, I'm figuring out how much money we need to have in a transition fund for when I leave the military. I was calculating the amount that I would get for selling my leave back, but it seems like everyone is saying that I shouldn't sell leave. Why?
It's true: many people say that you shouldn't sell back leave. However, it's a personal decision based upon a bunch of different factors, and what's right for many people won't always be right for you.
Great job on planning ahead! I absolutely love that you're putting together a transition fund!
The reason that most people don't advise selling back leave is because you make more money if you are able to take that leave as terminal leave. When you take terminal leave, you continue to receive your base pay, most other pays, basic allowance for subsistence (BAS), and basic allowance for housing (BAH.) Plus, you continue to accrue leave while you're on terminal leave, meaning that 30 days of terminal leave ends up being 32.5 days of that higher pay.
For some families, benefits are an important consideration. You're still on active duty while you're on terminal leave, so you still have access to Tricare, military shopping and base facilities. This can be a big deal for those who are separating from the service before reaching retirement.
On the other hand, there are benefits to selling your leave. You'll be officially done with the military, and you will get a chunk of cash for your unused leave. The amount is calculated by dividing your base pay by 30 (days in an average month) and multiplying it by the number of days of leave you are selling. Federal income taxes are withheld at 25%, though your actual tax burden will depend on your entire tax situation for the year. State and local taxes may also be withheld. (Note: leave earned in a tax-exempt combat zone is not subject to taxation.) I have a hard time understanding why this would be an attractive option, but I know plenty of people who prefer it.
Of course, you may not have a choice. Authorization for terminal leave is (mostly) up to the discretion of the command. I've heard of plenty of people who have been denied terminal leave, or only permitted to take a portion of the leave that they have available. Be sure your plan doesn't rely on selling back leave or being able to take terminal leave. The military is going to make you stay flexible until the very end!
Thanks for writing in,
Everyone has their own reasons for preferring to take terminal leave or selling back leave, but you can't make an informed decision without knowing how it all works. If you're facing this decision, verify everything I've said with your finance or transition assistance folks.