It is possible to get a TSP Loan.
But should you?
- Couldn’t we use it to buy real estate and make a fortune?
- Couldn’t we invest in the next hot thing, like an IPO, or bitcoin?
- What about gold!?!
These are some of the questions we are here to answer today. I’ve heard people suggest these very things.
I’m going to first explain how the program works, then explore how using it will impact your future retirement income (ouch).
If you want the BLUF (Bottom Line Up Front) and skip the TSP Loan intro, click this section , just tell me if I should get it or not!
THE TSP LOAN PROGRAM
I’ll be abbreviating the TSP loan program here, but here is the source link from tsp.gov.
The TSP Loan program lets you borrow money from your own TSP account while you are either in the armed forces or employed by the federal government.
HOW IT WORKS
When you borrow the money, it comes out of your actual TSP account. It can be any amount between $1,000 and $50,000, not to exceed your contributions and earnings from those contributions. It does not include any agency contributions (blended retirement system or BRS) or earnings from agency contributions.
As you are repaying this loan, it is repaid with interest through payroll deductions back into your own TSP account. This means that this large amount of money will not be growing tax advantaged in your TSP account during the time period you have borrowed it. You lose the opportunity for that growth. More on this later.
Keep in mind, even though you are paying interest, it’s a low, low rate and you pay it back to yourself, so it’s not really a cost to you. The interest, however, is not tax-deductible.
To be eligible for a TSP loan, the following must apply:
- Employed by uniformed services or federal government
- In pay status
- Only have one outstanding general purpose loan and one outstanding residential loan from any one TSP account at a time
- Have at least $1,000 in your TSP account not counting agency contributions and earnings
- Have not repaid a TSP loan of the same type within the past 60 days
- Not had a taxable distribution of a loan within the past 12 months unless it was the result of your separation from Federal service
- Not had a court order against your TSP account