Service Academy Cadets, Why Aren't You Contributing to an IRA?

by John Cooney on Jan 8, 2020

retirement, Roth IRA, TSP, Service Academy, West Point, Air Force Academy, Naval Academy, IRA

Can You Do It?

    • Yes!  The IRS has two rules on who can open an IRA:
      1. You must have received taxable compensation during the year
      2. You must not have turned 70 ½ by the end of the year (This will no longer apply after 1 Jan 2020 with the passage of the Secure Act)
    • Since as a Service Academy cadet you are compensated by DoD, you satisfy the IRS requirements and are eligible to contribute to a traditional or a Roth IRA


Should You Do It?

    • Yes!  OK, this may not be a yes for everyone, you know your financial situation best, but after reading this article, hopefully you see the benefits of sacrificing a little now, to put you in a better financial position later.


How Do You Do It?

    • First, determine if you can afford to contribute to an IRA
    • Second, choose an institution to invest with, among others, you can open an IRA with:
      1. Banks
      2. Mutual Fund Companies
      3. Financial Planner, like me!
    • Third, choose what to invest in
      1. Traditional vs Roth
        • Traditional contributions are “Pre-Tax” meaning you can deduct the amount of the contribution from your taxable income for the year.  The money you contribute then grows tax-deferred and you pay income taxes when you withdraw it.
        • Roth contributions are “Post-Tax” meaning you cannot deduct the amount of the contribution from your taxable income for the year.  The money you contribute then grows tax-free and you do not owe income taxes when you withdraw it in retirement.
        • Since the vast majority of cadets will owe little to no taxes it is likely that a Roth contribution would be more beneficial, but I recommend talking to a financial or tax professional if you are trying to decide which is better for you.   
      2. Next, decide on the investment vehicle
        • There are other options, but for most, you will be investing in a savings account, stocks, or bonds.
        • Savings accounts give you a guaranteed rate of interest, but the rate will usually be low.
        • Individual stocks and bonds can often give you a higher rate of return than a savings account, but a return would not be guaranteed, in fact your investment could lose money if the individual stocks and bonds you invest in decrease in value.
        • Mutual Funds and ETFS are essentially “baskets” of stocks and bonds and would be my recommendation for most cadets/investors.  You are not guaranteed a return and can lose money, but you spread out your risk by investing in a diverse group of stocks/bonds.


How You Can Benefit

    • If you don’t believe me, listen to Albert Einstein…”Compound interest is the eight wonder of the world.  He who understands it, earns it; he who doesn’t, pays it.”
    • To show the power of compounding, let’s look at an example.  Assuming a well-diversified account that earns 5% annually, a cadet who enters the Academy at 18 and saves $1000 each of their four years into a Roth IRA could potentially have an additional $28,000 in savings when they turn 60.  The best part, if It was a Roth, is that money would be available tax-free!


It will not likely make you rich, but the benefits from starting to save early are undeniable.  By sacrificing a couple Boodler runs and being intentional with your money, you can give yourself a head start to a successful retirement.  Starting an IRA early, combined with consistent contributions to the TSP can put you on the path to a successful and satisfying life after the military.


John Cooney is a fee-only planner and enrolled agent based in Middleboro,MA.  As a 98 West Point grad, he wishes he had read this article when he was a plebe!  Contact John at for a complimentary consultation on whether investing in an IRA is right for you.