The Best Investment Vehicles for Military Personnel

There seems to be some confusion regarding the best long term investment vehicles for military personnel—so here is the rundown—best to worst

1. Roth IRA: An investment vehicle that accepts annual contributions up to $4,000 a year (goes to $5,000 in 2008). Taxed on the way in; NOT on the way out—meaning you don’t get any tax exemptions for contributing. Your investment grows tax free; you must begin withdrawals at age 59 1/2.

2. Thrift Savings Plan (TSP): Operates like a traditional IRA, but allows contributions up to $10,000 a year, instead of just $4,000 for a traditional IRA ($5,000 in 2008). There are a certain number of funds you must pick from that operate like a mutual fund—I don’t like this method because of the traditionally higher expense ratios— I prefer index funds.

Please note: The TSP is the best thing going for civilians working in the military because they are matched, much like a 401k. However, military is unmatched, so the Roth IRA is a better way to grow your investment.

Final analysis: Fully fund your Roth IRA first; any leftover dollars move into the TSP. For now, don’t worry about a traditional IRA.

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If you want to know more about the different IRAs, The Motley Fool does a decent job in this article explaining some of the differences between them.