Q. I have separated from federal service with an existing Thrift Savings Plan loan. My intent is to take a lump-sum withdrawal and take a taxable distribution versus paying off the loan. In the end, will I end up paying more or less tax if I were to pay off the loan versus taxable distribution? A. It’s impossible to say what you’ll pay “in the end,” but if you repay the loan on time, your tax on the money owed will be zero until it is ultimately withdrawn.
Browsing: TSP loan
Q. I am a longtime CSRS employee with a pretty good Thrift Savings Plan balance. I plan to retire in two years and move to another city when I retire. My spouse is planning to retire in eight months, and we are planning to buy a house in the new city. We would like to buy the new house and begin the transition to the new city without selling our existing home until I retire. We are looking at a number of ways to finance the purchase of the new home and afford a mortgage payment on that house, a…
Q. I have two Thrift Savings Plan accounts — one with the military and one civilian. Because of my financial situation, I would like to take some money out for debt consolidation. I was weighing the option of borrowing from my civilian vs. closing my military account (which I am no longer contributing to) and using those funds. If I close my military account, can I roll a portion of it over to my civilian account, and use the rest? What/how much of a tax penalty am I looking at if I do either? Would it make sense to close my military…
Q. I want to take a loan from my Thrift Savings Plan account to cover my bills during the shutdown. According to the TSP loan booklet, as long as the furlough last less than 30 days, this is not a problem. If the furlough lasts more than 30 days, the loan becomes a disbursement and is taxed, plus additional penalties assessed (10 percent) by the Internal Revenue Service. Is this true? How can one prepare for a furlough that lasts longer than 30 days? A. I don’t know where you read this, but it’s not true. If you’re in nonpay status, you…
Q. I’m eligible to retire CSRS Offset in a few months. I was considering a Thrift Savings Plan loan prior to retiring to pay off other bills. I understand that upon retirement/separation, I would receive a Form 1099 for taxable income. Is this something I should consider? A. If you don’t repay your outstanding loan balance within 90 days of separation from service, the amount due will be declared a taxable distribution and will be treated as though you took the money from your account on the date of the declaration. I believe that you should always consider all reasonable options when it…
Q. In February 2012, I took a loan of $50,000 from my Thrift Savings Plan account to make a down payment for the joint mortgage with my spouse for our first home. In July 2013, my spouse refinanced our home in her name. I am off the title of this home and do not make any more mortgage payment. In return, among other items, I will receive back $50,000 of my contribution using my TSP account. TSP loan is only for primary residence purpose. Do I have to immediately make the payment to the balance of my TSP loan when…
Q. 1. I have $12,000 in student loans at about 6.5 percent interest rates. I had considered taking a loan from my Thrift Savings Plan account to pay off my balance as the interest rate I would pay back on the TSP loan is lower than my Stafford Loans. What is the maximum amount one can take out on loan from their TSP account? What is the repayment time frame demanded by TSP? 2. If I were able to pay off my Stafford loans with a TSP loan, I am not sure that would be the best decision. I am…
Q. If you have a Thrift Savings Plan loan and have paid three of the four years but want to remodel a house, can you change the existing loan to get the money? A. Only one general purpose loan at a time is allowed.
Q. When money is deducted from my salary to repay a Thrift Savings Plan loan, is it deducted after it is taxed or before it is taxed? Also, is money received from a TSP loan taxed as income (assuming no payments are missed)? A. Your loan payments are made with after-tax dollars. You loan proceeds are not taxable income if you repay the loan as due.
Q. I will be retiring with 20 years active-duty military in two years and am thinking about tapping into my Thrift Savings Plan for a 20 percent down payment on a home. I realize withdrawing early includes penalties I don’t want to pay. Would taking out a TSP loan be my best option? I’d like to use about $30,000 toward my retirement home, and the interest rates seem low enough I wouldn’t take that much of a hit. A. If you can repay it, a loan would be a reasonable way to avoid the early withdrawal penalty.