Both retirement savings plans have advantages. The Thrift Savings Plan (TSP) has very low expenses, and deposits can be made automatically via allotments from a service member’s leave and earnings statement (LES). Plan deposits and earnings are tax-deferred and are taxed upon withdrawal. Roth IRAs offer a broad assortment of investment options. They are funded with after-tax dollars (i.e., money that has already been taxed), and earnings are tax-free for account owners age 59½ and older with accounts open at least five years.
Service members should consider a Roth IRA if they expect their income—and future marginal tax bracket—to increase in later life. Roth IRAs are especially attractive for tax-free income earned in a combat zone because the money both goes in and comes out free of income tax.