TSP loan ramifications


Q: I am a retired Army reservist since July 2011. I was called to active duty in support of OEF in August 2006 until May 2011. Before my active-duty orders ended, I took out a loan from my TSP account. The loan has not been repaid, and I have separated from the service. If I elect not to repay the loan, will I be subject to the 10 percent early withdrawal penalty or am I eligible for relief from the penalty since I was a reservist called to duty for more than 179 days after Sep. 11, 2001?

A: There may be relief from the early withdrawal penalty on the declared distribution of your unpaid loan balance. In addition to the other requirements for this relief, the distribution must have been made during your period of active duty. I believe that the date the distribution is declared by the TSP is the relevant date, in this case, not the date you requested or received the loan. You should consult a CPA or other qualified tax preparer to be sure, however.


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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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