Q. I am under FERS with 19 years of service and I am eligible for retirement in 15 years. My wife also is under FERS and has 8 years of federal service with 15 years left. We are planning on starting a few home renovations in the next month and are unsure of the best option to cover the approximately $30,000 needed for these renovations. I was considering taking a loan out of her TSP for 5 years to cover the cost since the lower interest rate of 2 percent would make for a lower payment compared to another loan option. Since her TSP balance is lower than mine, I thought we would face a smaller loss on her potential account growth as compared to withdrawing it from my account. Is this a wise move? If not, what is our best option?
A. There is no simple answer to your question since the answer depends upon a variety of personal circumstances. You should certainly learn about the various options available to you before you choose one! I do not agree with your assessment that taking the loan from the smaller TSP account is the safer bet. In fact, the opposite is true. The magnitude of any foregone earnings will be the same in either case, since the loan amount will be the same in either case. If foregone earnings become a factor, they will have the biggest impact on the smallest account, where the loan represents the largest share of the account’s value.