Just as many private-sector employees can contribute to a 401(k) plan, active members of the United States 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 (IRA). For example, if you've maxed out on your TSP's matching funds,❀ opening a Rot𝔍h as well can help you maximize your tax-advantaged savings.

Why a Roth Account?

澳洲幸运5官方开奖结果体彩网:Thrift savings plans (TSPs) and 澳洲幸运5官方开奖结果体彩网:individual retirement accou﷽nts (IRAs) both come in two variants: traditional and Roth. A traditional account lets you invest pretax dollars, which grow on a 澳洲幸运5官方开奖结果体彩网: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 澳洲幸运𝔉5官方开奖结果体彩网:Roth retirement operates in reverse. While you contribute 澳洲幸运5官方开奖结果体彩网: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 澳洲幸运5官方开奖结果体彩网:tax bracket in retirement. Because the military skews younger than the civilian population—and includes many people who will eventually join the private sector—many 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 t𒐪hat you can then pull the money out tax-free when your income has grown.

A 澳洲幸运5官方开奖结果体彩网: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 i🧜nclude:

• Low fees: The 澳洲幸运5官方开奖结果体彩网:expense ratio for 澳洲幸运5官方开奖结果体彩网: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 澳洲幸运5官方开奖结果体彩网:contributions in 2025 phases out if you make more than $150,000 (single) or more than $236,000 (married, filing jointly). In 2024, contributions are phased out if you make more than $146,000 (single) or more than $230,000 (maried, 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 澳洲幸运5官方开奖结果体彩网: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. This is up from the 2024 limits of $23,000 (or $30,500 if you're age 50 or older). You can also contribute $7,000 into an IRA ($8,000 if you qualify for the 澳洲幸运5官方开奖结果体彩网:catch-up provision) for 2024 and 2025.

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.

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 澳洲幸运5官方开奖结果体彩网:lifecycle funds, which automatically adjust your 澳洲幸运5官方开奖结果体彩网:asset mix as you approach retirement. However, many IRAs provide a much larger array of investment choices, including real estate and commodities.
• More 澳洲幸运5官方开奖结果体彩网: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 (or $23,000 for a Roth TSP and up to $7,000 for a Roth IRA in 2024). 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 much 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).

The Bottom Line

For most members of the U.S. armed forces, your best bet is to 澳洲幸运5官方开奖结果体彩网: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.