Q: I am about five years from retirement under CSRS. I would like to take out a TSP loan to purchase a used car and to pay off a high-interest credit card balance. It seems to make sense to me since the interest rate is at 3.25 percent (G-fund). By being able to set the terms of the loan, I plan to have it paid off well before retiring. Does this make sense? What is the downside for my TSP account as I head toward retirement.
A: You’ve explained your plan. I can’t tell you whether it’s the best option for you since I don’t know enough about you, but I don’t see anything of particular concern in your plan. One potential downside is that, if the loan is not repaid by the time you retire, any outstanding balance, including interest, will be declared a taxable distribution.