Should I use my TSP?


Q. I am about to take a demotion from a full-time, year-round position at the GS-08 pay grade to a 13/13 (six-months-on/six-months-off) permanent seasonal position at the GS-04 pay grade, effectively cutting my annual salary by 70% (not counting what I will get from unemployment during the times when I am laid off).

I own my home, but still owe approximately $85,000 on it. Due to the downturn in the housing market, where I was once 30% or so paid off, my loan is now hovering right around 95-100% of my home’s current loan value. I have a fairly substantial amount in my TSP. Would it be smart to take out approximately 50% of my TSP to pay off my mortgage and car loan (and the 10% penalty and taxes) in order to be able to make ends meet? I hate the idea of dipping into my retirement, but with such a large reduction in pay, I do not know how or if we are going to be able to keep up on bills and the like in the future.

Is it smarter to take some out and put it in a safe financial position (with the intention that I would start paying more into my TSP as I get pay raises, step increases, etc. or back into a better job) or should we tough it out, drain our savings and risk going into default/more debt if something better doesn’t come up relatively soon?

A. The smart thing to do is to avoid tapping your TSP account unless you have no reasonable choice. If you’re facing foreclosure, you’ll have to decide whether to let the bank take your home and keep your money safe in the TSP, or pay to the penalty and use the TSP money to keep the house. There isn’t a universally “smart” choice here. I encourage you to try to make things work without tapping your TSP account until you need the money.


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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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