Roth TSP offers many advantages for military savers

link Tom Philpott

Military Update

Military savers are discovering the special advantages a Roth-type Thrift Savings Plan (TSP) provides to them, given that their taxable income is dampened by tax-free allowances and periodic tax-exempt combat tours.

The Roth TSP choice only became available in May 2012. TSP account balances so far average only $2,500 for all uniformed personnel. But the military participation rate in Roth TSP tells the tale.

While uniformed personnel have 15 percent of all TSP accounts, they are 46 percent of Roth TSP participants. It’s a trend advocates for adding the Roth option forecast.

“When we were preparing to launch the Roth TSP option, we anticipated it would be particularly attractive to our military participants,” said Kim Weaver, spokesperson for the Federal Retirement Thrift Investment Board, which administers TSP for federal civilian workers and the military.

Service members “generally are lower paid and so don’t benefit as greatly from a traditional pre-tax/tax-deferred option. But allowing them to contribute after-tax dollars that can grow for decades, and that can accept tax-exempt combat pay, is very attractive to military participants.”

Unlike traditional TSP that builds on using pre-tax contributions, Roth TSP contributions come from post-tax earnings. Those savings and any gains generated across a variety of TSP investment options will not be taxed when withdrawn in retirement.

A Roth TSP is especially attractive “for more junior members because their tax liability is low in the first place,” said Jeri Busch, director of military compensation policy in the Office of the Secretary of Defense. “If they put it in post-tax, they get to take it out no-tax. The advantage is there if you expect your tax bracket will be higher when you retire than it is currently.”

About a third of regular military compensation is tax-exempt allowances. And when taxable pay becomes fully tax-exempt in a combat area “the tax benefit of the Roth is tremendous,” added Steve Galing, deputy director of military compensation. Busch agreed.

“If they are in a combat zone tax relief area, sometimes referred to as a combat zone tax exclusion area … they can contribute to a Roth, without tax, going in, and then later take it out, without tax, coming out,” she said.

Tom Philpott can be contacted at Military Update, P.O. Box 231111, Centreville, Va. 20120-1111, or by e-mail at:

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