TSP Loan Rate 3.375

[Dan]

I'm looking to take a loan from my TSP, and the TSP posts the new rate at the beginning of each month. The Loan rate is currently 3.375 which is pretty darn good (for a loan--not account earnings).

The question is whether to get the loan now, or wait until April when the rate could be even lower.

The G fund rate is linked to 3 month T-Bills.

Any thoughts? Go now, or wait until April?

http://www.treas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml

http://www.treas.gov/offices/domestic-finance/debt-management/interest-rate/yield_historical.shtml

http://www.marketvector.com/interest-rate/90-day-t-bill.htm

http://www.forecasts.org/6mT.htm

 

[presskh]

I'm looking to take a loan from my TSP, and the TSP posts the new rate at the beginning of each month. The Loan rate is currently 3.375 which is pretty darn good (for a loan--not account earnings).

The question is whether to get the loan now, or wait until April when the rate could be even lower.

The G fund rate is linked to 3 month T-Bills.

Any thoughts? Go now, or wait until April?

http://www.treas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml

http://www.treas.gov/offices/domestic-finance/debt-management/interest-rate/yield_historical.shtml

http://www.marketvector.com/interest-rate/90-day-t-bill.htm

http://www.forecasts.org/6mT.htm

At that rate, I might be inclined to lock it in. It all depends on whether you believe stocks will go up or down between now and then. If they go up, then the T bill will also go up - same relationship if stocks go down. My feeling is that stocks have a bit further to go down from here but whether or not that happens before or after April I don't have a clue.

By the way, taking out a loan from your TSP is generally not considered a good financial strategy. Not only do you lose the opportunity to have above-average gains with the stock funds, but, when you withdraw your money after 59 and 1/2, you will also have to pay taxes on the interest you paid back on the loan with already-taxed money.

Just a point of view - everyone's situation is different.

 

[Show-me]

It should go down with this last rate cut. Yes no?

 

[offtrack]

Let me echo press. Loans from retirement are not exactly as they are sold. You are not borrowing at three plus per cent. If that were the case you would be earning the G-Fund rate on the funds while you paid them back. In fact you are taking the money out of your account and paying the principal back plus the juice--- in essence paying a percentage to use your own money. Old Rule of thumb was to double the percentage and compare to present loan rates to deem if wise. With retirement you have the added cloud of uncertainty since loan becomes distribution if you lose employment or otherwise miss payments and that adds IRS payment and penalties. Not that loans aren't useful in coverable amounts for short term

 

[Frixxxx]

.....

By the way, taking out a loan from your TSP is generally not considered a good financial strategy. Not only do you lose the opportunity to have above-average gains with the stock funds, but, when you withdraw your money after 59 and 1/2, you will also have to pay taxes on the interest you paid back on the loan with already-taxed money.

Just a point of view - everyone's situation is different.

Can you clarify the tax statement here...I have not found anywhere that states I have to pay on the back end when I take money out after 59 1/2. An example would help.

 

[presskh]

It should go down with this last rate cut. Yes no?

When the market goes up and people percieve that stocks are where they need to be, Treasury rates also have to go up to attract investors. When the market goes down, people flee to "safe havens" such as treasuries and thus, due to supply and demand, the Treasury doesn't have to pay as high of rates to attract investors. These lower rates also make the rates paid by current bond holders (bond funds) more valuable, hence making bond funds go up. Hence, the usual (not always) inverse relationship between stock and bond funds.

 

[presskh]

Can you clarify the tax statement here...I have not found anywhere that states I have to pay on the back end when I take money out after 59 1/2. An example would help.

Since the Government will not be contributing to your TSP while you have it out on loan, they make you pay "interest" on your money you borrowed equal to what the G fund would pay at the time the loan was taken out. The "interest" you pay on the loan is with after-tax money. When you draw it out after 59 1/2, all withdrawls, including the after-tax money you contributed as "interest", will be subject again to ordinary income taxes. Hence, you will effectively be double-taxed on the interest you pay, as well as missing out on potentially higher stock returns by not being invested in the market.

 

[DoughBoy]

I have thought about a loan also. After a lot of consideration, I have decided against it.
My reasons:
1) I want to keep my powder dry to be in position to make better than 3 1/2%. I don't think this bear market will last as long as the last. I hope this spring, we will have seen the worst of housing and oil. When they turn, the economy will EXPLODE to the upside.
2) I like having the ability to get to $50,000 in case of an emergency.
3) Oct was the time to take out a loan(at the high) not now(12% down).

 

[Show-me]

If you use it to leverage a investment like a Roth you can be ahead of the rally and have emergency cash. My loan, that I fully funded two IRA's for '07 and '08, has already exploded to the upside YTD by 12% and 32%.

Anything else I would not recomend a TSP loan for.

 

[Frixxxx]

Since the Government will not be contributing to your TSP while you have it out on loan, they make you pay "interest" on your money you borrowed equal to what the G fund would pay at the time the loan was taken out. The "interest" you pay on the loan is with after-tax money. When you draw it out after 59 1/2, all withdrawls, including the after-tax money you contributed as "interest", will be subject again to ordinary income taxes. Hence, you will effectively be double-taxed on the interest you pay, as well as missing out on potentially higher stock returns by not being invested in the market.

Made perfect sense that time.....I won't (and thankfully don't) need to do that!

 

[savingpvtbryan]

I've got $7000 worth of credit card debt with an interest rate of around 10%. I was thinking about taking $7k out of my TSP so I could pay off my credit card debt. Do you guys think this is a bad idea? 100% of my TSP is in C funds.

 

[EW_ret]

Since the Government will not be contributing to your TSP while you have it out on loan, they make you pay "interest" on your money you borrowed equal to what the G fund would pay at the time the loan was taken out. ....

That's news to me. Can the FERS members verify the Government does not match your normal TSP contributions while you have a loan outstanding? Why would they stop?

 

[Guest2]

I've got $7000 worth of credit card debt with an interest rate of around 10%. I was thinking about taking $7k out of my TSP so I could pay off my credit card debt. Do you guys think this is a bad idea? 100% of my TSP is in C funds.

Getting out from under Credit Card Debt is essential, however, to utilize
your TSP for loan purposes has always been looked down on. IMO, the
Market should dictate the move. If it's in an uptrend, not a good time.
If it's in a downtrend, you might come out slightly better by getting a
3.375% self payment, then accepting large loses.

The bottom line: I personally wouldn't do it, especially now. If your
situation demands it, then you have no choice. Try to shorten the
amount of time (as best you can) to pay it back. Otherwise, hands off !

 

[Show-me]

I've got $7000 worth of credit card debt with an interest rate of around 10%. I was thinking about taking $7k out of my TSP so I could pay off my credit card debt. Do you guys think this is a bad idea? 100% of my TSP is in C funds.

Welcome to the club.

NO! Never use your retirement to pay down your credit card debit. I would only use it to fund another retirement vehicle and use the shortest time line possible to pay it back. I used mine to fund my Roth. Always keep that money working toward your retirement.

Instead cut back your contributions to 5% and send a payment to the credit card company every week or every payday. Point is to force yourself to pay down the credit card as quick as possible.

 

[Gilligan]

That's news to me. Can the FERS members verify the Government does not match your normal TSP contributions while you have a loan outstanding? Why would they stop?

The Government still matches up to 5% even if you have a loan out. I have had 3 loans in the past, all for real estate, and the Government contributions continue.

 

[Dan]

well the loan rate is up in the 3.7 territory now

 

[Silverbird]

The Government still matches up to 5% even if you have a loan out. I have had 3 loans in the past, all for real estate, and the Government contributions continue.

Yes, you still get matching, I'm getting it and I'm still paying back a real estate loan. Most private sector 401(k)s stop matching during a loan payback but under TSP you still get the 5%.