Is it worth it to save a little over $2,000 by taking out a TSP loan at 2.25% over 4 years? I would have to take out $18,400 to pay off two school loans. One is at 8.25% and the other school loan is at 6.25%. Even though I would save over $2,000, I don't like taking $18,000 out.
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- Thread starter sross002
- Start date
Frixxxx
Moderator
- Reaction score
- 130
Hey sross002!
As I normally tell everybody, don't use your investments for paying off loans. First, create a budget. This will allow you to see where your money is going, prioritize your spending habits, and create a schedule to pay it off.
But make sure you keep getting the "free" matching going into your TSP.
Good Luck with your decision!
Bquat
TSP Talk Royalty
- Reaction score
- 414
Unless you can make 6.25 to 8.25 a year with it in TSP. Also check your credit union. I don't know what a signature loan is but a car loan was 2.5%. Just my area maybe. The good thing is your borrowing your own money with a tsp loan and what you pay back is your money again and not the banks.
Bquat
TSP Talk Royalty
- Reaction score
- 414
Yeah what he said and try to pay off the higher interest one first.
Sensei
TSP Pro
- Reaction score
- 27
On a related topic, does anyone know the turnaround time for a loan? If I request one on the tsp.gov website, will I be given an option to supply my checking account number so the money goes right into my account, or is there paperwork at a physical bank involved? Just wondering, as I have a credit union on base, but it's limited in some operations (like they don't do mortgages). I was hoping that in this day and age you could just give an account number and the funds would be deposited electronically in a couple days. Too optomistic?
burrocrat
TSP Talk Royalty
- Reaction score
- 162
if you are single, you can fill out the loan document online, print it out and have a notary witness your signature, fax it in, and recieve a treasury check in the mail to your address of record in about 10 days conus. if you want direct deposit you have to mail the physical loan document in.
tsp doesn't allow both electronic application and delivery in order to prevent fraud. either the actual loan document must pass through their hands or the actual check pass through yours.
if you are married, then your spouse must also sign the note. remember that little 'i get half' ring you gave her back when she still liked to make a mess on the kitchen table friday nights instead now it's i'll wash you dry and let's get some sleep?
also, given your international situation, you may run into some money importation issues.
the actual promissory note is very simple and doesn't require a banker to close, just the notary.(free at your credit union?) and tsp charges a flat $50 fee to process the loan.
you probably need to speak with tsp by phone about the international part, but maybe it's best you don't mention the kitchen table thing.
Frixxxx
Moderator
- Reaction score
- 130
Just to let everyone know, the loan process is pretty cut and dry on the web site. Put in your information and answer some questions. The paperwork is generated automatically. Generating the paperwork and actually recieving a loan are two different things. So if you want to see what a loan might do for you and how long you will be paying back, just test it out....It takes approimately 5 minutes to get through the process.
But seriously, this should be a last option for anyone planning for the future.
Frixxxx
Boghie
Market Veteran
- Reaction score
- 163
SRoss,
The school loans should be tax deductable - right off the top, you don't have to meet any criteria of how much you are going to deduct. That probably drops the interest rate a point or two.
As Frixxxx stated, a TSP (401(k)) loan is the last thing to consider.
It pulls money out of retirement and places it in day to day needs, and you might get used to that and do it often
You refill the retirement hole with after tax money - costing you your state and federal tax rate more.
If you leave the TSP system you will have to pay the remaining balance before you separate.
The money you don't have in TSP will not grow with the market.
Paying back the loan in a declining market will really suck.
You HAVE to pay it back within 5 years.
I think you can only have 1 loan.
Personally, I would rather overpay the existing student loans every month - even by $25 or so. I'm guessing your payment - if you are trying to pay it down in 4 years - is about $450. If you bring that to about $550 - and mark the $100 to principle - your student loans will be done in less than 3 years. Play with the calculators at Financial Calculators from Dinkytown.net . I would take the tax savings and flexibility of the student loans over a TSP loan as a default decision.
burrocrat
TSP Talk Royalty
- Reaction score
- 162
there are many variables to consider when taking out a tsp loan. you have to make your own pro/con list and see how it balances out for your particular situation.
the arguement against tsp loans seems to be twofold: lost tax advantage and lost potential growth.
the arguement for tsp loans, from my persective, is way more complex. it involves at minimum: trading freedom, trust in the entity holding 'your' money, asset allocation possibilities, fund expenses, inflation, interest rate spreads, and expectations for your future.
i am a big fan of tsp loans, and i'll tell you why.
burrocrat
TSP Talk Royalty
- Reaction score
- 162
it would be stupid not to take the free double-your-money 5% match. beyond that i don't see much value contributing to tsp. and i think there is great value to be had by 'loaning' yourself back your own 5% you originally put in.
you immediately win the double down bet and retract your wager so you are only playing with house money.
lowering tax liability with excessive contributions is dicey. i have always been and will always be taxed. the powers that be can and do adjust taxes regularly for advantage other than to my benefit. i also have never had enough, and i don't ever expect to either. so socking it away with a big number next to my name won't satisfy either me or the taxman. there are also alternatives that you can pursue with your own borrowed money that offsets tax exposure. just who do you let drive your bus anyways?
if i want to buy a new car i can pay the bank 7% or myself 2% on the purchase. instant 5% profit, no? no. because i still get to keep my original principal plus 2%, and the bank didn't get their pound of flesh. that also diversifies my holdings into equities now and the G fund cash i am paying myself back later, freeing me up to take more risk with the remaining balance and crush the returns. which coincidentally is the same arguement folks use to avoid tsp loans: money not in tsp can't gain. but how many folks who are afraid to lend to themselves at 2% also possess the knowledge and confidence to make snap trades that beat the market? that is a wash, at best.
burrocrat
TSP Talk Royalty
- Reaction score
- 162
benefits of tsp loans:
inflation. if gas costs $1 per gallon now and i hide $1 under my matress, does anybody think i will be able to buy more than 9/10's of a gallon later? this also speaks to living in the moment now vs. trusting someone else care for my living later. have you been to a nursing home lately? i would rather chew a juicy steak than be fed through a tube. besides, when i'm indigent that's what your tax dollars are for.
freedom: private brokerages (schwab in my case) offer etf's that replicate offerings in tsp, and more. in my brokerage and ira accounts i sling around allin trades of C/S/I funds equivalents commision free real time with no minimum required blocks of shares. ira replicates tax advantages of tsp. another roth ira defers tax advantages on the same trades for later adding diversity. a coverdale education ira also postpones taxes on gains for later and i was going to spend any gains in tsp for the same purpose anyways.
diversification: schwab offers a dozen and a half etf's that not only match us large cap, us small cap, corporate bonds, international large caps, and gov bonds. but also true small cap emerging markets; reit; 1-3, 3-10, and tips treasuries; and value, growth, and dividend indexes at no commision; plus the option of any marketable gold, silver, sin or green securities you can imagine at competitive market rates. why complain about sparse offerings and limited trades in the tsp then, unless you find value in complaining?
discipline: you can't splurge away your future in the tsp. bullcrap. you can easily, cheaply, and relatively quickly take out a tsp loan or hardship withdraw with penalty and buy any used minivan your heart desires, same as liquidating funds at any private brokerage. go ahead do it, everybody deserves a used minivan, not having one is a hardship you know. or don't do it if saving holds more value for you. who is pulling your purse strings?
last and best reason: because it's there. no explanation needed.
when i tally the whys and why nots of tsp loans, it always comes up why not.
burrocrat
TSP Talk Royalty
- Reaction score
- 162
oh, and i almost forgot. you can reamortize a tsp loan any and as many times as you want, for free. 25, 125, 1025 per pay period up to the max loan term, no matter. just login to the tsp website and give the instruction by noon tuesday to see the debit take effect by the next monday.
or you can let greg long drive your future. screw that guy. i trust me way more than him.american42
First Allocation
- Reaction score
- 0
@ Sensei
My turn around time was about 10 days to recieve the loan or funds electronicaly. However it takes 72hrs for the paperwork to be processed at TSP. I waited a week or more and when nothing came through I called. Found out I missed one step on my application and it stopped the request. ( a birthdate yr was fat fingured and didn't match my account date) I never was notified or called. So any time i now make a withdrawl of some kind I always submit the paperwork by FAX. Then call later that day or the next day to ensure all the paperwork was correct. I have closed two prior TSP accounts and gotten the money within the 10 days when I verified everything was correct.
Hope this helps
Sensei
TSP Pro
- Reaction score
- 27
Another question for the experts out there. I took out a loan a little over a week ago. The check made it, and I promptly deposited it. Today was payday, and my LES shows a deduction in line with the bi-weekly payback amount. However, when I log into tsp.gov, in recent transactions it shows the loan disbursement, my standard contribution for this pay period, and my agency matching contribution for this pay period. It does not show the repayment of the loan. So what's up? The money was witheld. Who's got it and when will it go back into my TSP balance?
Sensei
TSP Pro
- Reaction score
- 27
The loan repayment ended up posting in my recent transactions the next day. I don't know why the loan repayment is a day behind the contributions, but whatever. It seems OK.manzao1975
First Allocation
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- 0
manzao1975
First Allocation
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Good evening, I just started working for the fed a little over a year. 2 months ago I rolled over about 20K of my 401k from my last job. I am about to close on a home. I want to know if I can be able to take out the whole amount in the form of a loan or withdraw to pay towards my down pmt and closing costs.
Would appreciate any suggestions or guidance.
Sent from my iPhone using TSP Talk Forums
userque
TSP Legend
- Reaction score
- 36
Good eve'n,
You can start here:
https://www.tsp.gov/PlanParticipation/LoansAndWithdrawals/loans/index.html#LoanTypes
Feel free to ask again if something's not clear.Similar threads
