TSP loan and retirement

[fireman44]

Most of my co-workers come to me with TSP questions (they have this weird notion I know a lot!?!). But two had questions I couldn't answer. First person has about 2 years to finish paying back his TSP loan. But his circumstances have changed and he is considering retiring the first of next year (regular full retirement). If he hasn't finishing paying back his loan, how is the outstanding balance treated? Is it a taxable distribution or what?
Second, one is considering taking out a loan and has enough of their own funds for the max $50G. But in reading the material, they saw something about the "IRS $50,000 rule". I wasn't familiar with that either.
Any help on these two inquiries would be appreciated.
Thanks.

 

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From www.tsp.gov

What are the minimum and maximum amounts I can borrow?
The minimum loan amount is $1,000. Therefore, you must have at least $1,000 of your own contributions and attributable earnings on those contributions in your TSP account to apply for a loan. The maximum loan amount is $50,000, but the maximum amount you are eligible to borrow depends on the amount you have contributed to your account, any outstanding TSP loans, and limits set by the Internal Revenue Code.
If you have both a civilian and a uniformed services account, the maximum loan amount available for you to borrow will be based on calculations that consider the account balances and outstanding loan balances for both accounts.
To find out the amount you may be eligible to borrow from your TSP account, visit Account Access on this Web site or call the ThriftLine

 

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If you leave Federal service, you must repay the loan in full, including any interest on the outstanding principal. If you are requesting a withdrawal of your TSP account, delay in repaying your loan will affect the processing of your withdrawal. If you do not repay the loan, the TSP will declare a taxable distribution for the outstanding principal and interest balance. The TSP will also declare a taxable distribution to your estate if you have an outstanding TSP loan when you die.

 

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http://www.tsp.gov/features/chapter11.html

 

[Show-me]

Most of my co-workers come to me with TSP questions (they have this weird notion I know a lot!?!). But two had questions I couldn't answer. First person has about 2 years to finish paying back his TSP loan. But his circumstances have changed and he is considering retiring the first of next year (regular full retirement). If he hasn't finishing paying back his loan, how is the outstanding balance treated? Is it a taxable distribution or what?
Second, one is considering taking out a loan and has enough of their own funds for the max $50G. But in reading the material, they saw something about the "IRS $50,000 rule". I wasn't familiar with that either.
Any help on these two inquiries would be appreciated.
Thanks.

Quick and dirty.

The $50k is the IRS max limit you can borrow and yes, any amount not payed back before you leave the Fed. is taxable.

Hope this helps.

 

[RESQ264]

I recently took out a loan for 12,000. I am eligible to retire in 3 months. I obviously will not be able to re-pay this loan during the time before I retire. I will take a taxable distribution on the balance. I read that a 10% early withdrawl penalty MAY be imposed. My question is... What constitutes the "may" to incure this 10% penalty? TSP-Features.. How do I repay my loan... "You may also be subject to the 10 percent Internal Revenue Code early withdrawal penalty tax on this distribution."

keyword 'may' any input?
Thanks

 

[tsptalk]

What constitutes the "may" to incure this 10% penalty?

Welcome RESQ -

Usually if you are younger than 59 1/2, but there are exceptions.

http://taxes.about.com/od/retirementtaxes/a/early_penalty.htm

 

[RESQ264]

Thank You. I will meet the exception requirements.