Q: My husband just retired on Dec. 31 from the U.S. Postal Service and has a TSP loan balance. He’s 60 and will turn 61 on March 11. Should we pay off the loan, or should we choose not to pay and declare a taxable distribution? How much tax penalty with there be if we declare a taxable distribution?
A: If in doubt, he should repay the loan. If he doesn’t repay it, there will be no early withdrawal penalty – only income tax.