Retirement and TSP loan


Q. I am 54 years old with 33 years of federal service, 27 in the Postal Service and six as a military buyback. If the USPS offers voluntary early retirement, Iwould take it; but I have an outstanding loan with my TSP and not enough cash or credit for a loan to pay it off. How would this work? May I use my TSP to pay it back, and would I be able to withdraw funds from TSP, even with the 10 percent tax penalty? How does TSP figure what has been paid in and what is interest accrued, and am I able to use the noninterest funds to pay my loan off? Also, I turn 55 in August. Once I turn 55, will there be any penalty removed or will this happen at my minimum retirement age of 56?

A. Since you will be retiring in the calendar year in which you reach age 55, once you retire, you will have access to your TSP funds without the early withdrawal penalty. After you retire, your agency will notify TSP of your separation, and it, in turn, will notify you that you have an outstanding loan balance. If you do not repay the loan amount due promptly after receiving the notice, the TSP will declare the unpaid balance as a taxable distribution. This is effectively the same as withdrawing the money to repay the loan. In addition, you will have access to your TSP money, according to the usual rules, after you retire.


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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to and view his blog at

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