Military Families: Don't Miss This Tax-Free Retirement Opportunity

In the world of personal finance, there are few opportunities as lucrative and underutilized as the Roth Thrift Savings Plan (TSP) for military families. Certified financial planner Patrick Beagle, a retired Marine aviator and owner of WealthCrest Financial Services, has a clear message: "You're probably making a mistake" if you skip Roth TSP contributions while serving during your lower-income years. Let's dive into why this is a game-changer for military families and how they can maximize their retirement savings.

The Power of Roth TSP Contributions

The Roth TSP is a retirement savings account that allows military members to make after-tax contributions. While these contributions do not reduce your taxable income in the year they are made, the funds grow tax-free. This means that when you retire, you can withdraw your contributions and earnings without paying any taxes. For military families, this is a significant advantage, especially during their lower-income years of service.

Beagle emphasizes that the tax-free growth potential of a Roth TSP is particularly beneficial for those in lower tax brackets. By contributing to a Roth TSP during these years, military members can take full advantage of the tax-free growth potential without the immediate tax benefit of pre-tax contributions. This strategy can be particularly advantageous when their income increases post-service, as they will have two sources of income: their new career and their military retirement benefits.

Maximizing Tax-Free Income in Combat Zones

One of the unique financial planning opportunities for military members is the tax-free income status during combat zone deployments. According to certified financial planner Curtis Sheldon, "For the vast majority of people, when you deploy to a combat zone, you have tax-free income," and even a single day of service counts for the full month. This tax exemption includes basic pay, bonuses, student loan repayments, and more, as stated by the IRS.

This tax-free income can be used to make Roth TSP contributions, allowing military members to take full advantage of the tax-free growth potential without the immediate tax benefit of pre-tax contributions. Sheldon highlights that "it's also a 'really, really good year' for higher-ranking individuals to do Roth conversions while temporarily in a lower tax bracket." Roth conversions involve transferring pretax or nondeductible IRA money to a Roth IRA, which begins future tax-free growth. The trade-off is that investors owe upfront taxes on the converted balance. However, during combat zone deployment, the lower tax bracket can make this conversion more advantageous.

Leveraging the Savings Deposit Program

Another financial planning opportunity for military members deployed in combat zones is the Savings Deposit Program (SDP) offered by the Department of Defense. The SDP offers 10% annual interest on savings of up to $10,000 while service members are deployed in a combat zone. This interest rate significantly outpaces traditional savings accounts, which had an average interest rate of 0.41% as of March 17, 2025, according to the Federal Deposit Insurance Corporation.

Service members can use the money from the SDP as a "slush fund" for living expenses to defer more Roth contributions into their Thrift Savings Plan (TSP), as suggested by Beagle. This strategy allows military members to maximize their retirement savings and investments by leveraging the high-interest rate of the SDP and the tax-free growth potential of the Roth TSP.

Comparing Roth TSP to Other Retirement Savings Options

In comparison to other retirement savings options, such as traditional IRAs or 401(k) plans, the Roth TSP offers unique benefits. Traditional IRAs and 401(k) plans allow for pre-tax contributions, which reduce taxable income in the year of contribution but are taxed upon withdrawal in retirement. Roth IRAs, on the other hand, offer tax-free withdrawals in retirement but are subject to income limits for contributions. The Roth TSP does not have these income limits, making it a more accessible option for military members who may have higher incomes during their service.

Conclusion

In summary, contributing to a Roth TSP during military service offers military families the advantage of tax-free growth on their retirement savings, the potential for higher earnings post-service, and the ability to take full advantage of tax-free income during combat zone deployments. These benefits make the Roth TSP a compelling retirement savings option compared to traditional IRAs or 401(k) plans. By leveraging the unique financial planning opportunities available to military members, they can maximize their retirement savings and investments for a secure and comfortable future.