Q. My understanding is if I withdraw using a loan from my Thrift Savings Plan (say a residential loan) shortly before I retire and under 59½ years old, and then I retire or turn 59½, I get a 10 percent tax penalty because the loan was taken when I wasn’t eligible for a withdrawal without penalty. It seems a little contradictory because I could pay off the outstanding amount and then take an unpenalized withdrawal after retirement or 59½. Am I reading this rule correctly? A. No. If your unrepaid loan balance is declared a taxable distribution, it is counted as…
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Q. I am 60½ years old, under FERS and plan to continue to work until 66. I took out a loan from the Thrift Savings Plan and currently have payments for two more years. I am wondering if I could not pay this loan off and have it counted as a disbursement since I am old enough to withdraw from my account. I would not do this until 2013. A. Yes, if you default on your loan repayment, the TSP will declare your unpaid balance, including interest, a taxable distribution and the usual rules will apply.
Q. I just separated from the military and have an outstanding loan. I recently mailed in the “intent not to repay” form. How long will it take for the Thrift Savings Plan to claim a taxable distribution and close out the loan? Also, if the entire sum of the loan was accrued in a tax-free combat zone, will they still tax the remaining balance? A. I checked with the TSP, and it should take one to two weeks for TSP to declare a taxable distribution once it receives an “intent not to repay” notice. Only the outstanding loan principal and…
Q. I have a loan of $6,000 on my Thrift Savings Plan with 20 payments left. I am 60. If I make an age-based in-service complete withdrawal of my TSP, what happens to my loan and the payments I am making? Do I have to keep making the payments and then wait until I separate from service to receive it, or will it become a taxable disbursement and end my payments? A. Your loan repayment obligation continues until the loan is repaid or you fail to make the required payments and the balance due is declared a taxable distribution.
Q. I have a Thrift Savings Plan loan and I am retiring. I’m reading everywhere and understand that I must pay back the loan to avoid a taxable distribution. What is the time frame for that? Your reply to someone last year was, “Your loan balance will be automatically declared a taxable distribution if you fail to repay it after you retire.” But is there is time frame after I retire? Does it have to be paid by the day I separate, or can it be paid a few weeks after my official date of retirement? A. You will have…
Q. I am planning on retiring in December, but I will still have outstanding balances owed on my Thrift Savings Plan loans. Will they take that remainder out of my TSP money when I withdraw it? A. If you retire with an outstanding loan balance, the unpaid balance, plus interest, will be declared a taxable distribution. This money has already been deducted from your TSP balance, so it won’t be available for withdrawal if it has not been repaid.
Q. I am 60 years old and plan on working until I’m 66. Can I take a first-time homebuyer loan from my Thrift Savings Plan as a down payment? If so, what form would I fill out? Do you happen to know how long it takes to get the money? Would I have to pay it back to the fund? Is there a penalty? I would not be taking any other payments out at this time. A. You may take a loan from your TSP, which must be repaid, or it will be declared a taxable distribution. You’ll find the…
Q. I have worked for the Postal Service for 24 years as postmaster. I would be able to take an early-out offer. I want to borrow on my Thrift Savings Plan for a residential loan. If I do a 10-year loan from my part of the TSP next month and then they offer early retirement and I take it, will I still have to continue making the payments? Also, when I retire, will I be able to pull out all my savings in TSP? A. If you retire, your outstanding TSP loan will become due. If you don’t repay it…
Q: I am about to retire. I still have a balance due on a loan from my TSP. Can I take the balance due as taxable distribution? I have already taken a one-time distribution after I turned 60. Or, do I have to pay it off before I can roll it into an IRA? A: Your loan balance will be automatically declared a taxable distribution if you fail to repay it after you retire.