TSP loans and repayment


Q. I am a few months from retirement. I have a small residential loan (circa $6,000) that I am still repaying, but would also like to take out some more money from the TSP via a general purpose loan just before retirement. This seems worth it to me, even with the eventual tax liability because I could use the extra cushion while my retirement income stabilizes with OPM. I am over 55, so am only going to have to pay the loan values at my regular income tax rate, money which I will set aside. My TSP account is very healthy, as is my annuity. I have been blessed in my federal career.

My question revolves around the fact that when I retire, I will also receive the proceeds of another non-federal retirement account, which will pay out all contributions to me in cash, and roll over the rest into any approved retirement account I designate.

I plan to roll the earnings from that account into the TSP, which will pay back the amount of the loan (but not the fact of it) I take, plus a sizable amount more, so my TSP will be back where I started – even better. But I will still have two loans that will eventually become taxable distributions.

I am resigned to the fact that there is no way I can designate the rollover earnings toward the remaining loan values when paid to me within that 90-day window, or is there? I recognize I could just take the contributions I receive back and pay off the loans and be done with them, assuming the timing works, but this leaves me with even less cushion, so I am reluctant to do that.

A. A TSP loan can only be repaid with after-tax dollars, so you can’t use a rollover of pre-tax funds to repay a loan.


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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 fedexperts@federaltimes.com and view his blog at money.federaltimes.com.

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