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Information about taking a loan against TSP
- Thread starter RCTXAN
- Start date
luv2read
Market Veteran
- Reaction score
- 18
HI,
Several people have done this over the past year for various reasons, one of which was to fund a Roth. You might try searching the threads/posts for "TSP loan".
Check Show-Me's thread. I know the information is out there, sorry I can't be of more help with listing the threads.
Several people have done this over the past year for various reasons, one of which was to fund a Roth. You might try searching the threads/posts for "TSP loan".
Check Show-Me's thread. I know the information is out there, sorry I can't be of more help with listing the threads.
DCguy
TSP Strategist
- Reaction score
- 2
ppl have been saying not to get a tsp loan, but I disagree. I did it and I can tell you that the current apr is about 4.4% and it does not effect your credit score because you actually use your own money. When you pay the interest on the loan, you actually pay to self. Yes, you pay back with after-tax money, and you pay tax again when you retire. But if you get the personal loan from a bank, you pay the bank 10+% interest with the after-tax money and your credit score probably drops. If you get the tsp loan, you should try to pay off as soon as possible. Also, you can log into tsp.gov and click on the loan link to find out how much you can borrow and how long it takes to pay off. You can pay off or refinance the loan anytime at tsp.gov.
Show-me
TSP Legend
- Reaction score
- 104
RCTXAN,
Welcome to the MB. It depends on your unique situation and reason for the loan. If you are using it to go on a vacation I would not do it. If you have a small amount of credit card debt with high interest rate that is killing your budget I would only recommend it if you cut up the credit cards first and make a pledge to yourself not to use credit cards.
Using it to buy a Roth CD at 6% yes, no high risk investments for you with 7 years to go. No individual stock or high risk ETF's. You need to be conservative and pay down debt before you retire.
TSP loan cost $50 and the interest rate is the G fund rate that is paid back to your account. It must me paid off before you separate from your government employment or you will get nailed from the money that you have not paid back. This include penalties and taxes.
RCTXAN, This thread may help. 
.http://www.tsptalk.com/mb/showthread.php?t=5721&highlight="borrowing+thrift+home"
.http://www.tsptalk.com/mb/showthread.php?t=5721&highlight="borrowing+thrift+home"
Silverbird
Market Veteran
- Reaction score
- 27
By the way, there is no grace period on a TSP loan, you immediately start making payments on it.
Probably the biggest "con" to taking a loan against your TSP is the loss of potential earnings the money would have made had you left it in the account. Given the current state of the market, I am sure you'll get a number of different opinions. Some may say that it is actually preserving your capital to some degree since the markets are generally in a decline while others will staunchly defend the position that you are loosing a lot of potential gain by having that money "out of play.
My personal opinion, though I am no expert by any stretch of the imagination, is if the loan is relatively small and is going for a good cause, and other sources of money are not viable or available, then it may very well be justified if the gain from taking a TSP loan outweighs the potential loss of gains while the money is out of the market. On the other hand if the loan is for something frivolous or something where other conventional financing could reasonably be used, even if it is at a higher interest rate, then it probably is not be the wisest move. One of the key things to consider for anyone contemplating a TSP loan is the money in your account and the money it earns will likely be a large part of what generates your retirement income unless you have other significant investments in addition to your TSP.
With only about 7 years left in gov't service starting to reduce your exposure to volatile market conditions should be considered since your horizon to recover from a major or even moderate loss is quite short. This being said, you should examine how much money you are considering taking out versus what that same amount could potentially grow to if you leave it in your account for the next 7 years based on your prevailing investment strategy and contribution allocations. The hardest part is trying to speculate on what the market will do.
I don't think there are any simple answers to your question as it all depends on how much money you are considering borrowing, how much you have in your account, your investment goals, your current and future investment strategies and the biggest unknown, what the markets will do in the next 7 years or even the next few months for that matter.
For what it is worth, I personally think we are likely to see generally declining markets for a year to 18 months more or less, with periodic short term rallies like we saw last week. I feel there are probably still a lot of corrections the markets need to make in a number of sectors foremost of which are the financial and housing sectors. I think there is also a lot of bad debt and investments’ hiding out there that need to be purged which makes it tough to say what may happen in the near term. I do, however, believe we'll see the markets get back on track once all this occurs, maybe not to the degree we enjoyed in recent years but at least there will, (hopefully), be reasonable growth and realistic positive gains. It would be nice to think we’ve finally learned that “bubble” economics is not a good strategy or sustainable market condition.
Anyway, I would suggest you continue your research, gather as much advice and information as you can, try and sort it out and then determine what you are comfortable with.
My personal opinion, though I am no expert by any stretch of the imagination, is if the loan is relatively small and is going for a good cause, and other sources of money are not viable or available, then it may very well be justified if the gain from taking a TSP loan outweighs the potential loss of gains while the money is out of the market. On the other hand if the loan is for something frivolous or something where other conventional financing could reasonably be used, even if it is at a higher interest rate, then it probably is not be the wisest move. One of the key things to consider for anyone contemplating a TSP loan is the money in your account and the money it earns will likely be a large part of what generates your retirement income unless you have other significant investments in addition to your TSP.
With only about 7 years left in gov't service starting to reduce your exposure to volatile market conditions should be considered since your horizon to recover from a major or even moderate loss is quite short. This being said, you should examine how much money you are considering taking out versus what that same amount could potentially grow to if you leave it in your account for the next 7 years based on your prevailing investment strategy and contribution allocations. The hardest part is trying to speculate on what the market will do.
I don't think there are any simple answers to your question as it all depends on how much money you are considering borrowing, how much you have in your account, your investment goals, your current and future investment strategies and the biggest unknown, what the markets will do in the next 7 years or even the next few months for that matter.
For what it is worth, I personally think we are likely to see generally declining markets for a year to 18 months more or less, with periodic short term rallies like we saw last week. I feel there are probably still a lot of corrections the markets need to make in a number of sectors foremost of which are the financial and housing sectors. I think there is also a lot of bad debt and investments’ hiding out there that need to be purged which makes it tough to say what may happen in the near term. I do, however, believe we'll see the markets get back on track once all this occurs, maybe not to the degree we enjoyed in recent years but at least there will, (hopefully), be reasonable growth and realistic positive gains. It would be nice to think we’ve finally learned that “bubble” economics is not a good strategy or sustainable market condition.
Anyway, I would suggest you continue your research, gather as much advice and information as you can, try and sort it out and then determine what you are comfortable with.
Show-me
TSP Legend
- Reaction score
- 104
http://finance.yahoo.com/focus-reti...u-Borrow-From-Your-401(k)?mod=retirement-401k
For the new folks, TSP is for us a 401(k). Same rules apply.
For the new folks, TSP is for us a 401(k). Same rules apply.
Like everything else in life, the right answer is it depends. I took out a TSP Home loan recently so I can tell you about the factors that influenced my decision.
1. We found an anxious seller and got a really good deal on the house we bought. Two other similar houses in the area sold earlier the month we closed for $105-$110/sqft. We paid $93/sqft. Thats a 'return' of over 13% from the start.
2. I was not confident in where the market would go for (at least) the rest of the year. I ran several scenarios estimating different market profiles and when the associated break even would be. Roughly the markets would have to return several years of 8-10% just to break even in less than 4-5 years. Anyone confident in that happening?
3. The interest rate was on par with the tax shielded mortgage rates. (Remember that TSP home loans are not tax deductible!)
4. I 'only' have 29 more years until I retire. My risk tolerance is fairly high.
The big down side that I saw was that it obligates me to work for our good uncle until paid off. Else Bad Things Happen. It is on schedule to be paid off in 5 years, so hopefully that risk will be minimal.
1. We found an anxious seller and got a really good deal on the house we bought. Two other similar houses in the area sold earlier the month we closed for $105-$110/sqft. We paid $93/sqft. Thats a 'return' of over 13% from the start.
2. I was not confident in where the market would go for (at least) the rest of the year. I ran several scenarios estimating different market profiles and when the associated break even would be. Roughly the markets would have to return several years of 8-10% just to break even in less than 4-5 years. Anyone confident in that happening?
3. The interest rate was on par with the tax shielded mortgage rates. (Remember that TSP home loans are not tax deductible!)
4. I 'only' have 29 more years until I retire. My risk tolerance is fairly high.
The big down side that I saw was that it obligates me to work for our good uncle until paid off. Else Bad Things Happen. It is on schedule to be paid off in 5 years, so hopefully that risk will be minimal.
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