:max_bytes(150000):strip_icc()/GettyImages-1670270816-0ad5575958954483983518d73656a96c.jpg "Should Military Members Open a Roth IRA?")
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Just as many private-sector employees can contribute to a 401(k) plan, active members of the U.S. armed forces can invest through a thrift savings plan (TSP). While the TSP and Roth TSP have several benefits that make them a great starting point for your retirement savings, they’re not the only tax-advantaged options available to you.
Certain service members may actually benefit from putting some of their retirement savings into a Roth individual retirement account (Roth IRA). For example, if you’ve maxed out on your TSP’s matching funds, opening a Roth as well can help you maximize your tax-advantaged savings.
Key Takeaways
- Some active-duty personnel may want to supplement their thrift savings plan (TSP) investments with a Roth individual retirement account (Roth IRA).
- In most cases, you should only use a Roth IRA if you have maxed out your TSP’s matching funds first.
- TSPs and IRAs have separate contribution limits, so using both allows you to increase your tax-advantaged savings.
Why a Roth Account?
TSPs and individual retirement accounts (IRAs) both come in two variants: traditional and Roth. A traditional account lets you invest pretax dollars, which grow on a tax-deferred basis. You then pay ordinary income taxes on the amount you withdraw after age 59½. In effect, your main tax benefit is front-loaded.
A Roth retirement operates in reverse. While you contribute after-tax dollars, you can generally withdraw your funds tax-free after you reach age 59½ (the Roth TSP and Roth IRA also require you to own the account for five years).
This makes the Roth variant extremely desirable for anyone anticipating a higher tax bracket in retirement. Because the military skews younger than the civilian population—and includes many people who will eventually join the private sector—a lot of uniformed personnel are in that category. It’s better to pay the income tax on contributions when you’re in a relatively low bracket so that you can then pull the money out tax-free when your income has grown.
A Roth TSP or Roth IRA can be even more rewarding for those making tax-free combat pay. By funding a Roth account with that money, you’re getting a triple tax advantage: tax-free contributions, tax-deferred growth, and tax-free withdrawals in retirement.
Note that with a Roth TSP, the back-loaded tax benefits only apply to your contributions. Any amounts put into your account by the federal government are treated as traditional TSP contributions, meaning that pretax money goes into your account, and all withdrawals of that money are subject to ordinary income tax.
Advantages of a Roth TSP
A Roth TSP offers a number of advantages that make it a great starting point for your retirement savings. These include:
- Low fees: The expense ratio for index funds in a TSP ranges from 0.048% to 0.054%. That means at best, you’re only paying 48 cents per year on every $1,000 in your account. The industry average for index funds was 0.05% in 2023, or 50 cents per year on every $1,000, according to the Investment Company Institute.
- No income restrictions: With a Roth IRA, your ability to make contributions in 2025 phases out if you make more than $150,000 (single) or more than $236,000 (married, filing jointly). A Roth TSP, on the other hand, has no income restrictions.
- Ability to take out loans: A TSP allows you to take out loans, which you must start paying back with interest 60 days from when it’s disbursed. IRAs don’t offer a loan option (although you can take out a very short-term, interest-free loan, paying it back within 60 days, using an IRA rollover).
- Higher contribution limit: For 2025, you can contribute up to $23,500 to a TSP—the cap applies to traditional and Roth funds—or up to $31,000 if you’re age 50 or older. You can also contribute $7,000 into an IRA ($8,000 if you qualify for the catch-up provision).
Most important is that your contributions are matched by up to 4% of your salary—and that’s on top of the automatic 1% contribution made by the plan. For example, if you invest 5% of your salary, then the plan puts in another 5%, giving you a total contribution of 10%. That’s a powerful way to boost your account balance, especially as those plan contributions can grow over time. Therefore, it rarely makes sense to direct money toward a Roth IRA until you’ve maximized your match.
| Plan Contributions Through TSP | |||
|---|---|---|---|
| Your Contribution | TSP Automatic Contribution | TSP Matching Contribution | Total Contribution |
| 0% | 1% | 0% | 1% |
| 1% | 1% | 1% | 3% |
| 2% | 1% | 2% | 5% |
| 3% | 1% | 3% | 7% |
| 4% | 1% | 3.5% | 8.5% |
| 5% | 1% | 4% | 10% |
| 5%+ | 1% | 4% | Your % + 5% |
When a Roth IRA Makes Sense
Once you’ve reached the cap on TSP matching contributions, some service members opt to contribute additional amounts to a Roth IRA. Here are some of the reasons why you may want to use an IRA.
- More investment options: As with 401(k) plans, TSPs are somewhat limited in terms of where you can put your money. A TSP offers five stock and bond index funds as well as lifecycle funds, which automatically adjust your asset mix as you approach retirement. However, many IRAs provide a much larger array of investment choices, including real estate and commodities.
- More tax-advantaged contributions: The IRA contribution limit of $7,000 a year or $8,000 if you’re age 50 or older doesn’t count against your TSP ceiling, so younger investors can put up to $23,500 into a Roth TSP and up to $7,000 into a Roth IRA in 2025. That makes the IRA a great choice for military personnel who plan to max out their TSP account.
- Withdrawal flexibility: With a Roth IRA, you can withdraw contributions anytime with no tax or penalty (but pulling out earnings before you’re eligible could trigger income taxes and a penalty). The Roth TSP doesn’t offer that flexibility, so you would have to rely on loans to avoid early withdrawal penalties.
Directing part of your income toward a Roth IRA is a lot easier if you do it electronically. One way to do that is by creating an allotment, or payroll deduction, through the Defense Finance and Accounting Service (DFAS).
Can You Contribute to a Thrift Savings Plan (TSP) and an Individual Retirement Account (IRA)?
Yes, military members are able to make contributions to both types of retirement accounts. For 2025, you can contribute up to $23,500 ($31,000 if you’re age 50 or older) to a thrift savings plan (TSP) and up to $7,000 ($8,000 if you’re age 50 or older) to an individual retirement account (IRA).
What Are the Benefits of a Roth IRA Over a TSP?
While a TSP has a number of advantages, including a match on your contributions, a Roth IRA may also be a good option for some military personnel. Roth IRAs have more investment options, and you can withdraw contributions tax-free anytime, even if you’re younger than 59½.
How Does a Roth IRA Differ From a Traditional IRA?
With a traditional IRA, you contribute pretax dollars but pay ordinary income tax on withdrawals after reaching age 59½. A Roth IRA works in the opposite way. You contribute post-tax dollars but have the ability to make tax-free withdrawals in retirement. Among the other differences is the income requirement for Roth IRAs, which doesn’t exist for the traditional version.
The Bottom Line
For most members of the U.S. armed forces, your best bet is to contribute enough to a TSP to maximize the plan’s match. Once you’ve hit that point, though, your options open up. Roth IRAs have their own perks, including greater investment choice and the ability to pull out contributions tax-free at any time.