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TSP

Administered by the Federal Retirement Thrift Investment Board, this defined contribution plan for federal employees has roughly 4,614,874 participants, and over $358 billion in assets under management. Ask your TSP questions and post related topics here.

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SeekingIdeas  
#1 Posted : Tuesday, July 29, 2014 2:43:14 PM(UTC)
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Has anyone done this? What's the max you can withdraw or borrow? How is it paid back? Do you do this through HR or submit form online?
Trader3569  
#2 Posted : Tuesday, July 29, 2014 5:11:23 PM(UTC)
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I believe the max is $50,000. The TSP website will have the terms as to interest, time to payoff the loan and how to apply. Now this is free advice and do what you like with it - This a bad idea. Think about it, you have to pay yourself back plus interest and at the same time you are losing the TSP increases on the money borrowed. So your real rate of interest on a TSP loan could easily be 20-30%, much higher then what a bank would charge.
New name, same old idiot! Former name TRyno.
SeekingIdeas  
#3 Posted : Wednesday, July 30, 2014 4:06:47 PM(UTC)
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How is it 20 to 30%?

When you borrow say $50K against your TSP, does that amount come out of your TSP in terms of selling mutual fund shares and turn it into cash so you can borrow?
Trader3569  
#4 Posted : Wednesday, July 30, 2014 6:43:50 PM(UTC)
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Originally Posted by: SeekingIdeas Go to Quoted Post
How is it 20 to 30%?

When you borrow say $50K against your TSP, does that amount come out of your TSP in terms of selling mutual fund shares and turn it into cash so you can borrow?


Yep that is exactly what happens. You are borrowing from YOUR TSP balance. So say you have $200,000 in the TSP and borrow $50,000 you will only have $150,000 in the TSP plus a $50,000 loan. It's really the most expensive way to borrow.

New name, same old idiot! Former name TRyno.
Knight  
#5 Posted : Thursday, July 31, 2014 7:09:04 AM(UTC)

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Here is the basic info:

https://www.tsp.gov/plan...n/loans/loanBasics.shtml

You pay it back each paycheck over X years. A general loan has 5 years max to pay it and a residential is 15 years.

There is a calculator to show how much you pay over X time.

https://www.tsp.gov/planningtools/loan/loan.shtml

Here is the max pulled for the max time.

Quote:
Loan Amount: $50,000
Type: Residential
Term: 15 Year(s)
Repayment frequency: Biweekly
Interest rate: 2.250%
Payment amount: $152.00
Number of payments: 390
Total interest (finance charge): $9,280.00
Total loan cost (total payment): $59,280.00


Yes it drops your TSP by 50k for 15 years so that compounded interest is lost forever. Many say don't do it but in the end you do what you think is best for you.
hustonj  
#6 Posted : Thursday, July 31, 2014 7:55:39 AM(UTC)
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Originally Posted by: Trader3569 Go to Quoted Post
Originally Posted by: SeekingIdeas Go to Quoted Post
How is it 20 to 30%?

When you borrow say $50K against your TSP, does that amount come out of your TSP in terms of selling mutual fund shares and turn it into cash so you can borrow?


Yep that is exactly what happens. You are borrowing from YOUR TSP balance. So say you have $200,000 in the TSP and borrow $50,000 you will only have $150,000 in the TSP plus a $50,000 loan. It's really the most expensive way to borrow.


Trying to rephrase the answer, just in case . . ..

A TSP loan is not a loan secured by your equity in yout TSP account.

A TSP loan is a withdrawal of money from your TSP account that you have to pay back under loan-like terms.

So, your account drops value by $50,000. On every payday for the next 15 years it goes up by whatever your normal paycheck contribution has been, plus agency matching contributions, plus your new $152 loan payment.

The goal of the interest that the TSP loan charges you is to help make up for the lost compounded interest within your account.

As Knight said, really nobody but you can determine if this is what you want to do or not.

Knight  
#7 Posted : Thursday, July 31, 2014 9:04:44 AM(UTC)

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oh yea, and if you leave the government (fired or retire) that amount is considered wages and you have to pay taxes on it. You have a 90 grace period to pay it all back before it is declared wages.

https://www.tsp.gov/plan...loans/nonPayStatus.shtml

Quote:
When you leave Federal service, you must repay your loan in full within 90 days after your separation is reported to the TSP. Your repayment must include any accrued interest on the outstanding principal balance.

If you do not repay your loan in full, a taxable distribution of the outstanding balance of your loan will be declared.
Trader3569  
#8 Posted : Thursday, July 31, 2014 6:41:27 PM(UTC)
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Knight and houstonj are correct, I don't think it's a good idea but that's only my opinion. You have to look at your situation and make that decision. To add to Knight's comment about taxes, those could also include a 10% penalty.
New name, same old idiot! Former name TRyno.
thanks 1 user thanked Trader3569 for this useful post.
Knight on 8/1/2014(UTC)
Knight  
#9 Posted : Friday, August 1, 2014 5:36:28 AM(UTC)

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Good catch. I thought it would just be declared wages but the words are "a taxable distribution" which means a 10% penalty for some people depending on age.
SeekingIdeas  
#10 Posted : Friday, August 1, 2014 1:19:18 PM(UTC)
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Everything you all have mentioned relates to lost opportunity cost (TSA amount increase while invested in stocks) and possible tax and penalty IF you leave the Government. Here is my question, is there a penalty for paying back the loan early. Say, you have a 15 year term, can you pay if off in 3 or 5 years without any penalty?
Trader3569  
#11 Posted : Friday, August 1, 2014 1:43:19 PM(UTC)
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No penalty for early repay as far as I know. I would suggest you read some the links posted above rather then depending entirely on the answers we are giving.
New name, same old idiot! Former name TRyno.
martyb  
#12 Posted : Friday, August 1, 2014 3:54:19 PM(UTC)

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No, there is no penalty for early repayment. When I was young(er) and foolish, I borrowed $10,000 from my TSP. Fortunately I was able to repay it within about 6 months, so the damage to my TSP account was minimal from a lost-opportunity standpoint in terms of missed earnings. There was no early-payment penalty assessed. Now I'm retired, just received my first interim CSRS pension payment today, and all is well! I strongly advise against early withdrawal/borrowing from your TSP unless it's a life or death emergency. Even then, I'd think twice!
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SeekingIdeas  
#13 Posted : Friday, August 1, 2014 4:11:26 PM(UTC)
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We all agree that owning a house/condo is a good investment for the long term.

Say you're in your 30s, and you have about little to no savings, but you have over $100K in TSP and 401K. You mean to tell me that it's a bad idea to take out $30K from that as down payment to buy a home, and quickly (within few years) pay it off? Isn't that better than continue to rent for years and years when you know that you will stay and settle in one location?
SeekingIdeas  
#14 Posted : Sunday, August 3, 2014 9:33:11 AM(UTC)
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Anyone???
Not retiring yet  
#15 Posted : Sunday, August 3, 2014 12:31:32 PM(UTC)
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Check with a couple REALTORS You may be surprised at what you may be able to purchase (home/house) Another way to consider/ besides rent, is YOUR mortgage payment is TAX deductible. YOUR contributions to TSP at the same time, is TAX deductible. YOUR loan payments for TSP are NOT tax deductible. So, depending on your other needs, your NEW house payment, may actually be A - affordable and B - actually less than RENT. Realtors can be a great help with helping you through the ropes of a new house purchase. Banks might also consider it a negative that you borrowed the money (and that much) to make a down payment. Without that loan, and your steady, regular income, considering low interest rates these days, house payment could be easily accomplished. And your TSP will still grow. (Not sure, but, I believe I read somewhere, that along with your loan, you may not be able to contribute to TSP and thus lose any matching funds) AND you would also have a mortgage payment and a loan payment Which could be more than a possible house payment without the loan.
Trader3569  
#16 Posted : Sunday, August 3, 2014 12:47:28 PM(UTC)
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Originally Posted by: SeekingIdeas Go to Quoted Post
We all agree that owning a house/condo is a good investment for the long term.

Say you're in your 30s, and you have about little to no savings, but you have over $100K in TSP and 401K. You mean to tell me that it's a bad idea to take out $30K from that as down payment to buy a home, and quickly (within few years) pay it off? Isn't that better than continue to rent for years and years when you know that you will stay and settle in one location?


"We all agree that owning a house/condo is a good investment" I don't about a condo but a house is usually a good investment but a lot of people have lost money on homes in the past. My personal opinion is that you don't borrow from retirement funds except in the case of life saving medical need. What you do is up to you, the best place to start is read some of the info in the links people have supplied.
New name, same old idiot! Former name TRyno.
Knight  
#17 Posted : Sunday, August 3, 2014 12:49:01 PM(UTC)

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Are you a Veteran? You don't need the 20% down like a traditional home loan. You could drop your TSP to 5% and divert the rest to a savings account for the home purchase.

If you do pull it know the risks and impact. It might be the best for you. And you can pay it back as fast a possible. Like you are planning, I pulled from mine years ago and double up on payment when I could to pay it off. But now that I get closer to my retirement my opinions have changed.
hustonj  
#18 Posted : Sunday, August 3, 2014 8:37:31 PM(UTC)
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Originally Posted by: SeekingIdeas Go to Quoted Post
We all agree that owning a house/condo is a good investment for the long term.


No, we don't.

If you own the property your family lives in, that's good for your family. If you think of owning the property you are using as your primary residence as an investment, then you refuse to think of it as a home.

I will never agree that a long-term investment is more important than a home for you, your spouse, and your children.

Homes don't exist in order to make you money. They exist in order to help you feel safe and comfortable.

Edited by user Sunday, August 3, 2014 8:38:24 PM(UTC)  | Reason: Not specified

SeekingIdeas  
#19 Posted : Tuesday, August 5, 2014 7:21:48 PM(UTC)
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I still don't understand why is it such a bad idea to borrow from your TSP for short term (5 years or less) for a down payment for a home, to order to purchase a place and to avoid paying mortgage insurance.
Knight  
#20 Posted : Wednesday, August 6, 2014 4:51:38 AM(UTC)

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Or save the amount you would have paid the TSP for 5 years and buy a home once you have the down payment. The calculator says that is $800 a month. Can you sock that away right now?

Some people pull money to pay off credit cards, thinking it will lower their debt and payments. However now they are paying to the TSP (with little wiggle room) and start reusing the credit cards to cover the difference and suddenly they are back to square one.

I am not saying that is you. At least you are buying something that should have value long after you pay off the loan.

In the end the choice is yours, if your mind is set to buy now, then do so. Come back in a few years and tell us if you still agree with the decision you made.
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