TSP Loans

You are allowed to take TSP loans against the value of your Thrift Savings Plan account.

There are two different types of loans:

• Personal Loan
• Primary Residence Loan

Here's what you need to know about these Thrift Savings Plan loans...

TSP Personal Loans

You can choose to repay the loan over 1 to 5 years.

And - you don’t have to justify the purpose of the loan. You just request the loan and you get it.

TSP Primary Residence Loans

The maximum amount that you can request for a residential loan is $50,000.

And you can choose to repay the loan over 1 to 15 years

With this type of loan - you will need to fill out additional forms, and submit proof that the loan was for your primary residence.

TSP Loans: Pros and Cons

First, the interest rate you’ll pay is typically lower than other personal loan rates. The interest rate you pay on your loan will be fixed based on the G Fund interest rate at the time you apply for the loan.

Second, the interest you pay on the loan goes back into your TSP account. So you are technically paying yourself interest.

You should also know that loans from your TSP are tax-free. You do not have to pay ordinary income tax on the money that comes out of your TSP in a loan... as long as you pay it back.

What's bad about TSP loans?

Some people who take out a loan against their TSP will have trouble making the payments.

Just because you *can* get a loan, doesn't mean that you *should*. Taking a loan against your TSP requires financial discipline.

If you are considering taking out a loan against your TSP to consolidate credit card debt - take a hard look at all of your options.

Thrift Savings Plan loans are tax-free *if* you pay them back. If you don't, you will have to pay taxes - and possibly extra penalties.

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