TSP Loans and retirement

[Elgallo]

I am of the understanding that if one has an unpaid balance remaining on a TSP Loan at he time of retirement, that unpaid balance is applied to your income for the year in which you retire. Is this correct?

If the above is correct in that the unpaid balance is applied to ones regular income, can one at the time of retirement request an additional lump sum of say $20-30K?

Thanks

 

[James48843]

I am of the understanding that if one has an unpaid balance remaining on a TSP Loan at he time of retirement, that unpaid balance is applied to your income for the year in which you retire. Is this correct?

Yes, if you still have an outstanding loan at the time you separate from federal service, the amount is considered to be unpaid, and therefore income, and is due to be taxed fully as income at the time of separation. If you are younger than age 59 1/2, you also may be subject to a 10% penalty for early withdrawl. (Special rule apply)

If the above is correct in that the unpaid balance is applied to ones regular income, can one at the time of retirement request an additional lump sum of say $20-30K?

Thanks

No, you can't ask for an additional lump sum, UNLESS you are asking in conjuction with a fully qualified 59 1/2 or later retirement (i.e. you are of proper age etc.) Then, you could ask for either a partial, or ALL of your money out, but remember, you end up paying taxes on that too. Or you can leave the money in the TSP, or you can ask for monthly payments.

If you can't pay your taxes due to the sudden lump sum payment, you are in real trouble. This is why it is not recommended to take out a loan, or maintain a loan, if you think you may be leaving the service. Remember,you can do two types of loans- a housing loan, and a conventional loan. If you have taken out a loan, then it MUST paid off before you separate, or else it's taxed big time. If you are above the age limit, you CAN take a partial payment. Best to check it all out before you retire.

Good luck.

You can also set up a withdrawl (if you need it) and specficy the monthly amount once per year. You can change or adjust that amount in a later year, if you find you are not getting enough, or getting more than you need.

Here is the linkfor the page regarding distributions: https://www.tsp.gov/planparticipation/withdrawals/withdrawingAccount.shtml

and here is the link regarding TSP Loan payoff information, and what is taxable:
https://www.tsp.gov/planparticipation/loans/taxableDistributions.shtml

 

[Rube]

Yes, I think you can take a partial or total lump sum cash out of TSP and additionally use part of TSP to purchase an annuity as well as roll into an IRA. Personally, I am planning to keep my $ in the TSP because I can manipulate it there at a very low administrative cost.

 

[Scout333]

I am of the understanding that if one has an unpaid balance remaining on a TSP Loan at he time of retirement, that unpaid balance is applied to your income for the year in which you retire. Is this correct?

If the above is correct in that the unpaid balance is applied to ones regular income, can one at the time of retirement request an additional lump sum of say $20-30K?

Thanks

ElGallo, I agree with James its best to repay asap and before retirement as you will have more flexibility and options. One other quirk is that the repayments are treated the same way your contributions are. i.e. 30% C 40% S 30% I or however you have yours set up to go into your account. If you have used up your IFTs for the month and plan to make a large repayment on your TSP loan you can change your contribution allocation before making the repayment to 100% I for example and your repayment(s) will go to I. Probably a lot of effort for a little return on smaller amounts but I earned an extra $ 800 on a $ 12k repayment. Good Luck!

 

[Elgallo]

Thanks to everyone for your candid responces.

I'm currently 63, full FERS, and plan to retire in 31 months (Sep 2013) at 66 with full SS if I can take working for the government that much longer. Got 31 years now!

By that time I will have retired all but about $5K of the loan, and there is a good possibility it will be paid off completly.

So this is good to hear I may even be able to buy me self a new pickum up truck soon after I retire.

Thanks again.

 

[Brett]

My wife and I are both CSRS employees. My wife is going to retire this year, where I have another two plus years to go. Question: Is the best way for me to take over here $15K lone is for me to take a loan out and pay it by check? Can a loan be transferred between spouses any easier than that?

 

[tsptalk]

I doubt a transfer would be allowed between spouse's accounts, but im not sure. I'm guessing you'll have to go the other route (take out a new loan and pay off the other).

 

[Frixxxx]

My wife and I are both CSRS employees. My wife is going to retire this year, where I have another two plus years to go. Question: Is the best way for me to take over here $15K lone is for me to take a loan out and pay it by check? Can a loan be transferred between spouses any easier than that?

I doubt a transfer would be allowed between spouse's accounts, but im not sure. I'm guessing you'll have to go the other route (take out a new loan and pay off the other).

You will have to take the loan from your TSP to pay her TSP(just like tom said).... administrative headache....But you might save a few bucks on the interest rate since it's 2.875% now!

And thank your wife for her dedication to service!!!!