Q. I am 63 years old, in FERS, have 25 years of service, and have worked for the same agency my entire government career. Because of medical conditions, I need to retire within the next two months. I have an outstanding $20,000 loan and will not be able to repay it before retirement. I have read a lot of what might happen: 10 percent penalty, etc. But could you explain what would be the best course of action and how the outstanding loan will be treated. I would like to use part of my Thrift Savings Plan for medical bills.
A. If you fail to repay the loan shortly after you retire, the outstanding balance will be declared a distribution and you will be required to report that amount as ordinary income on your tax returns for the year. Since you are over age 55, there will be no early withdrawal penalty. Once you retire, you will have access to your TSP assets without penalty. Visit www.tsp.gov for information about your options for withdrawing money after you separate from service.
