Q. I have to retire in 18 months. I plan on taking a lump sum and monthly allotment from my Thrift Savings Plan at retirement. I understand both of these will be taxed at 20 percent. I am thinking of taking a TSP loan for the amount I had planned on requesting as my lump sum prior to my retirement date, with the understanding that I won’t have the time to pay it back in full and that the amount I don’t pay back will be considered disbursed income. My reasoning is that having the funds now will allow me to begin the process to purchase my retirement home, and allow me to at least pay a portion of the loan back. Is there a downside to this plan?
A. You should consult your tax preparer for testing and advice about the potential impact on your tax returns. The only general implications of this strategy that come to mind are:
1. If the distribution is declared before the calendar year in which you reach age 55, it will be subject to the early withdrawal penalty and
2. There will be no tax withholding in the case of a declared distribution.