Loan Repayment Upon Retirement

[domingo3]

From the pamphlet: "If you separate from Federal civilian service or the uniformed services with an outstanding TSP loan and you do not repay the entire loan, the TSP must declare a taxable distribution of the unpaid balance before a withdrawal can be processed."This seems to indicate that there is only a penalty/concern if looking for a TSP withdrawal with a TSP loan balance due. So long as I am reading this right, then there will not be a problem. Thanks for the assist!

Be careful! I think you may be taking that quote out of context. I think that when you separate, you either a) repay the entire balance or b) a taxable distribution will be declared. Also, with other distributions, you can't specify to take the tax exempt portion. The percent that's tax exempt in your entire account will be applied to your distribution. I would assume that it would be the same for a TSP loan that gets declared as a distribution as well.

If you dont' want that amount to be considered a taxable distribution, I'd suggest you look into it further. Below is pasted from the tsp.gov:




When are Taxable Distributions Declared?


The TSP will declare a taxable distribution on the entire unpaid balance of your loan plus accrued interest:

• If you fail to repay your loan(s) in accordance with your Loan Agreement.
• If you miss a loan payment and you do not make it up within the specified time period.
• If you do not repay your loan when you separate from Federal service. In this case, the TSP will report a taxable distribution to the IRS and you will owe income taxes on the outstanding balance of the loan. However, you may be able to roll over the taxable amount of the distribution into an IRA or eligible employer plan with 60 days to avoid taxes and penalties.

 

[Scout333]

From the pamphlet: "If you separate from Federal civilian service or the uniformed services with an outstanding TSP loan and you do not repay the entire loan, the TSP must declare a taxable distribution of the unpaid balance before a withdrawal can be processed."

This seems to indicate that there is only a penalty/concern if looking for a TSP withdrawal with a TSP loan balance due. So long as I am reading this right, then there will not be a problem.

Thanks for the assist!

Ness, For most TSP holders retiring any unpaid loan balance will either have to be repaid or it will be treated as a taxable distribution. There may be an exception for non-taxable combat pay, etc. Worth checking into. You could always save what you would be paying each month as a monthly repayment and use the TSP as an emergency fund. I.E. Withdraw whatever you need for an emergency (remember the withdrawals are taxable and depending on age , etc. could be subject to a penalty).
JMHO

 

[Frixxxx]

Just remember that if you put in any (non-taxable) monies in while in a combat zone, you will not be taxed on that amount. Be sure you work closely with a loan processor at TSP to ensure that you don't get pegged with penalties/taxes when/if you do!

 

[ness_james143]

From the pamphlet: "If you separate from Federal civilian service or the uniformed services with an outstanding TSP loan and you do not repay the entire loan, the TSP must declare a taxable distribution of the unpaid balance before a withdrawal can be processed."

This seems to indicate that there is only a penalty/concern if looking for a TSP withdrawal with a TSP loan balance due. So long as I am reading this right, then there will not be a problem.

Thanks for the assist!

 

[Frixxxx]

I just can't seem to see what the rule is. I won't have a problem paying back, just wondering if I would need to straight away.

Read this and determine if it fits.
link

Down near the bottom talks about status of uniformed TSP and their contributions status/type.

 

[ness_james143]

See Payment Coupon - HERE - You fall under a different set of rules. But I'd try to save up before you retire for those expenses. No sense affecting your long term plans, with short term issues.

I just can't seem to see what the rule is. I won't have a problem paying back, just wondering if I would need to straight away.

 

[Frixxxx]

See Payment Coupon - HERE - You fall under a different set of rules. But I'd try to save up before you retire for those expenses. No sense affecting your long term plans, with short term issues.

 

[ness_james143]

What happens to my loan repayment upon military retirement? I presumption is that the deductions continue from my retirment check, but I keep getting hints that the loan would become due in full upon retirment. Which is it?

I am thinking of taking a small loan out of my TSP about six months out to help with my transition. Will the loan even be approved with a 2 year payback if I am retiring within 6 months?