Accelerate Loan Repayment or Increase Contribution?

Sort by newest Sort by date
B

bkjames00

First Allocation
Reaction score
0
So I took out a 15 year loan against my TSP to use as a down payment on my home earlier this year. My question is am I better off accelerating the loan payoff or increasing my TSP contribution?? Or does it matter? Right now my TSP contribution is 5%.
 
Both offer a deduction but the TSP will probably appreciate faster this time around versus the home. We are at rock bottom golden prices and now is the time to accumulate as many shares as possible for posterity.
 
Birchtree said:
Both offer a deduction
Click to expand...
I don't believe that the repayment of TSP loans is deductible. The big part of this decision is whether or not you believe that you will still be employed by our good Uncle in the next 15 years. If so, then I would increase the contribution amount. If not, then I would pay off the loan sooner.
 
Regardless of whether you have a loan or not, you should certainly increase your allotment; otherwise your aren't maximizing your tax deferment.
 
ChemEng is correct, it is not deductable. I think you pay a little less interest, but there aren't very many other places you can borrow at the G rate. So there are balances here to consider. By the way, if your situation changes you can re-amortize your loan again.
 
bkjames00 said:
So I took out a 15 year loan against my TSP to use as a down payment on my home earlier this year. My question is am I better off accelerating the loan payoff or increasing my TSP contribution?? Or does it matter? Right now my TSP contribution is 5%.
Click to expand...

Max out your contributions! $16,500 next year:D
 
I meant the interest rate on the mortgage is deductable - sorry about the confusion.
 
My two cents, get out from under the loan quick. You are buying shares cheap right now. Then after the loan is paid off crank up the contributions. Right now taxes are cheap, pay the taxes now. The way the Fed, Treasury, and Bush are throwing out money who ever is the next Prez will have to raise taxes on all wage earners to pay down the debt.
 
Thank you all for your suggestions. The bottom line is that I can only afford to put an additional $100/month (after tax) or about $133 (pre-tax??) into TSP.

So the question is, "Should it go towards paying the loan or increasing my contribution?" By paying the loan I can cut the repayment period in about half -- 15 years to about 7 years.
 
Me vote loan then after it is paid off kick up your contributions to include the loan payment.

Welcome to the mb.
 
Remember that when the loan is paid you can actually increase the contribution more than the loan payment because you will not pay taxes (withholdings) on the contribution amount.
 
bkjames00 said:
Thank you all for your suggestions. The bottom line is that I can only afford to put an additional $100/month (after tax) or about $133 (pre-tax??) into TSP.

So the question is, "Should it go towards paying the loan or increasing my contribution?" By paying the loan I can cut the repayment period in about half -- 15 years to about 7 years.
Click to expand...

BK , I just dealt with that exact scenario and I chose the increase in loan payment to cut my repayment period to 5 years. Just my 2 cents worth. When raises come along you can step up the payments.:)
 
Show-me said:
Remember that when the loan is paid you can actually increase the contribution more than the loan payment because you will not pay taxes (withholdings) on the contribution amount.
Click to expand...
Thats true, but the "cost" of doing that is missing the Tax Deduction during the time he is accelarating those payments.

Either option is valid (or you could do a piece of both), just be aware of the costs associated with both approaches before you decide.
 
ChemEng said:
Thats true, but the "cost" of doing that is missing the Tax Deduction during the time he is accelarating those payments.

Either option is valid (or you could do a piece of both), just be aware of the costs associated with both approaches before you decide.
Click to expand...

The only consideration in my opinion is what is your normal allocation? If you are generally 100% stocks, then repay the loan as soon as possible. Your losing earnings(15 years of earnings lost is huge) on the 50K at a greater rate than the interest your paying yourself! (assuming we are at the bottom:D) If you generally have some in the G fund(50K or more) then increase your contributions. Use the loan principle as part of your G fund allocation. Interest rates are not going up in the near future.

Jeff
 
I would increase my loan payment. Who knows about the stock mkt....you may be puting money in while it is decreasing. I would want to get my house paid off. Then you can increase your TSP as you are able to. There is such freedom in paying off a housing loan....then you are free to deal with increasing your "TSP".
 
Show-me said:
Me vote loan then after it is paid off kick up your contributions to include the loan payment.

Welcome to the mb.
Click to expand...

DITTO!

No matter what debt you have (besides mortgage), get it paid off prior to increasing any type of investment.

And no matter what, always contribute up to a match, if one exists.
 
You must log in or register to reply here.

Similar threads

D
Small Withdrawal Tax Amount?
Replies
8
Views
5K
evilanne
evilanne
tsptalk
A conversation with TSP Executive Director Ravi Deo
Replies
1
Views
290
WorkFE
WorkFE
tsptalk
  • Article Article
What downgrade? Stocks recover from early selloff
Replies
0
Views
183
tsptalk
tsptalk
tsptalk
  • Article Article
To V, or not to V?
Replies
0
Views
216
tsptalk
tsptalk
tsptalk
  • Article Article
TSP Talk - So long, February!
Replies
0
Views
279
tsptalk
tsptalk
Back
Top