Individual retirement accounts (IRAs) may be considered supplements to your retirement savings after you maximize the amount you can invest in your Thrift Savings Plan (TSP). Generally speaking, the TSP has several advantages over IRAs and should be your first choice to reach your retirement goal.

IRAs fall into three separate categories:

• Deductible Traditional IRA
• Roth IRA
• Nondeductible Traditional IRA

IRAs are intended to be long-term investments for your retirement. Unless you can live without the money, it's not a good idea to open an IRA. Most credit unions, banks, and brokerage firms offer IRAs, and they may be able to provide you with more information to make your individual choice of products. You should, however, check with a tax advisor before opening an account.

Deductible Traditional IRA
Unless your 2007 adjusted gross income (AGI) is over $103,000 for a joint return (or $62,000 for a single taxpayer), this is your best choice for retirement savings after you maximize the amount you can invest in your TSP. You can put up to $4,000 per individual in an IRA and take a tax deduction for your contribution. If you are in the 15 percent tax bracket, this means you will save $600 in federal taxes you would otherwise pay to the IRS each year in which you make a contribution! (That doesn't even count state and local taxes you may also save.) The contribution must be made by April 15th following the tax year.

Earnings on your IRA remain tax-deferred until the funds are withdrawn. When you withdraw from your Deductible Traditional IRA, you will pay income tax on the full amount you withdraw. If you withdraw any money before age 59-1/2, you will also pay a 10-percent penalty, unless the funds are used to purchase a first home or pay qualified medical or education expenses. Eventually, you or your heirs will have to pay tax on your Deductible Traditional IRA. The IRS requires that you begin withdrawing your money at age 70-1/2.

Roth IRA
If your AGI is under $166,000 for a joint return (or under $114,000 for a single filer) in 2007, you can invest in a Roth IRA. Contributions to a Roth IRA do not qualify for a tax deduction, but the earnings on the account are tax-free when withdrawn after age 59-1/2 and the account has been open for five years. You can also invest up to $4,000 per year, but the total amount contributed to both a Traditional IRA (if you qualify) and a Roth IRA cannot exceed $4,000 per year. This is better than tax-deferred earnings; you never have to pay tax on your earnings if you follow the IRS rules! And the tax-free earnings can grow indefinitely because there are no rules requiring you to withdraw the funds from your Roth during your lifetime. Your heirs, however, will eventually have to withdraw the money under an IRS schedule. But the earnings will be tax-free to them, as well.

Nondeductible Traditional IRA
The only way an investor can fund a nondeductible IRA is by a rollover from another pre-tax retirement savings account (e.g., TSP, 401k, 403b, 457).  This is the preferred method when you leave an existing employer – roll your retirement savings money into an IRA.  This way you can control the investments and could contribute if needed.

Heroes Earned Retirement Opportunities (HERO) Act
Members of the military serving in Iraq, Afghanistan and other combat zone localities can now put money into an individual retirement account, even if they received tax-free combat pay, according to the Internal Revenue Service. Under the Heroes Earned Retirement Opportunities (HERO) Act, taxpayers can now count tax-free combat pay when determining whether they qualify to contribute to either a Roth or traditional Individual Retirement Account (IRA). Before this change, members of the military whose earnings came entirely from tax-free combat pay were generally barred from using IRAs to save for retirement.

In addition, the HERO Act allows military personnel who received tax-free combat pay in either 2004 or 2005 to go back and make IRA contributions for those years. Eligible military members will have extra time, until May 28, 2009, to make these special back-year contributions. For those under the age of 50, the IRA contribution limit was $3,000 for 2004 and $4,000 for 2005. For those 50 and over, the limit was $3,500 for 2004 and $4,500 for 2005. If a return has already been filed for a particular year, contributions should be reported on an amended return, Form 1040X. Depending upon the circumstances, military personnel who choose to put money into a traditional IRA for 2004 or 2005 may qualify for additional tax refunds.

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