This video addresses the questions you should ask and know before taking a loan from your Thrift Savings Plan.
⏰ Timecodes
0:00 – Intro
0:33 – TSP Loans
1:03 – Do I qualify?
1:51 – What are my loan options?
3:31 – How much can I borrow?
4:19 – What are the interest rate and costs?
5:21 – How is the loan repaid?
6:41 – How do I apply?
7:11 – Should I take a TSP loan?
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Fedway Financial provides financial planning, investment management, and benefits training to federal employees and retirees. Our goal is to help you understand and maximize your federal benefits program, and make prudent and informed decisions related to every facet of your financial life.
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🎵 Music provided by LAKEY INSPIRED – Chill Day
Disclaimer: All content on this site is for general information purposes only and is not intended to provide any personalized financial advice….(read more)
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Taking A TSP Loan: What You Need To Know
The Thrift Savings Plan (TSP) is a retirement savings plan available to federal employees and members of the uniformed services. It offers numerous benefits, including low-cost investment options and tax advantages. While the primary purpose of TSP is to provide a way for individuals to save for retirement, it also allows participants to take loans from their accounts. If you’re considering taking a TSP loan, here’s what you need to know.
What is a TSP Loan?
A TSP loan is money borrowed from your TSP account. The loan must be repaid with interest within a specific time frame, typically five years, although certain circumstances may allow for a longer term if the loan is used for the purchase of a primary residence.
Loan Eligibility and Limitations
To be eligible for a TSP loan, you must be an active federal employee or a member of the uniformed services. You can take a loan from your TSP account regardless of the number of years you’ve been employed but should have at least $1,000 in your account. The maximum loan amount you can borrow is the lesser of $50,000 or 50% of your vested account balance.
Repayment Terms
When you take a TSP loan, you must repay it through payroll deductions, which means that loan payments are automatically deducted from your salary. The standard repayment term is five years, although you can choose a shorter term if preferred. Interest rates for TSP loans are set quarterly and are equivalent to the Thrift Savings Fund (G Fund) interest rate at the time of the loan request.
Implications and Considerations
While TSP loans may seem like an attractive option, there are several factors you need to consider before borrowing from your retirement savings. Firstly, you should evaluate other available loan options, such as personal loans or home equity loans, as they may have lower interest rates or more flexible terms.
Moreover, taking a TSP loan means withdrawing money from your retirement account, which can hinder your long-term savings potential. The borrowed funds will no longer benefit from potential market growth, potentially impacting your overall retirement savings. Additionally, if you leave federal service or the uniformed services before repaying your loan, you may face tax consequences and penalties.
It’s crucial to use TSP loans responsibly and only when necessary. They should be seen as a last resort in situations where you have exhausted all other options and need immediate funds. It is recommended to consult with a financial advisor or seek guidance from the TSP administrators to fully understand the implications and consequences of taking a TSP loan based on your individual circumstances.
In conclusion, while TSP loans can provide short-term financial relief, it’s important to remember that they come with risks and implications on your retirement savings. Before taking a loan from your TSP account, carefully evaluate your options, weigh the benefits and drawbacks, and ensure you have a clear plan for repayment.
Question, so while im paying my loan, my tsp is not generating any money? Even though i am paying it off?
If you have 2 loans out already and pay one off. How soon can you take out another?
So if I have a total of 40k in individual funds and lifecycle funds can I borrow 20K general and 20k for primary residence?
Thanks for the information.
What if i had an existing loan and wanted to change the repayment period? Could i do that via Lite blue or on the tsp website?
I'd like more information on paying it back. You said that the money is deducted from my checks, but do I choose how much is deducted from each check or is it automatic? What is the default rate of deduction? When mentioning the qualifiers. How do I know how much I have contributed compared to how much was matched? Thank you for the information. If I may offer one criticism, it's that the music is way louder than you were. I had to turn it down not to disturb the neighbors, then turn it up to hear you, and turn it down again at the end.
Is a TSP loan always better than hardship in service withdrawal?
Interesting, so I can’t take a loan if I’m in the C fund?
Also what if I moved my money into the lifecycle fund, would I then be able to take the loan of 10,000$?
So if a person has 250K in their TSP the max loan from TSP is still 50K?
Good information. Thank you.