Borrowing money can be a necessity for various life events, from unexpected expenses to planned investments. If you’re a federal employee or a member of the uniformed services participating in the Thrift Savings Plan (TSP), you have a unique option to consider: borrowing from your own retirement savings. This guide, based on official TSP resources, will walk you through the essentials of TSP loans, helping you understand if borrowing money online from your TSP is the right choice for your financial needs.
TSP Loan Basics: Your Retirement Savings as a Loan Source
The TSP loan program allows active participants—current federal civilian workers and uniformed service members—to borrow money directly from their TSP accounts. The key advantage here is that when you borrow from your TSP, you’re essentially borrowing from yourself. You repay the loan, with interest, back into your own account.
Repayment is structured through regular payments, typically via payroll deduction if you’re still in federal service. If you’ve left federal service, alternative methods like direct debit, check, or money order are available. The interest rate on a TSP loan is fixed for the loan’s duration and is tied to the G Fund interest rate from the month preceding your loan request. This often results in competitive interest rates compared to traditional online loans.
Current TSP Loan Interest Rate: A Key Benefit
–%
Please note: The current interest rate is dynamically updated by TSP. Refer to the official TSP website for the most up-to-date rate.
One of the attractive features of a TSP loan is the interest rate. Since it mirrors the G Fund rate, it’s generally stable and often lower than what you might find with personal loans or credit cards offered online. This can make borrowing from your TSP a cost-effective way to access funds when you need them.
Applying for a TSP Loan Online: A Step-by-Step Process
The process to apply for a TSP loan is designed to be accessible online. You can initiate your loan request by logging into your My Account on the TSP website. For additional support, you can also contact the TSP through their ThriftLine.
Before you start your application, it’s crucial to thoroughly review the official TSP booklet Loans (206kb) and the information provided on the TSP website. Understanding the rules, eligibility criteria, and restrictions is essential to ensure a smooth borrowing experience.
Important Considerations Before You Borrow Money Online from Your TSP
While borrowing from your TSP offers advantages, it’s vital to carefully consider the potential impact on your retirement savings. Although you are repaying the loan with interest back to your own account, taking money out temporarily means you miss out on potential compound earnings that this money could have generated if left untouched in your TSP. This “opportunity cost” is a crucial factor to weigh.
Furthermore, TSP loans come with processing fees that are deducted from the loan amount and are not returned to your account:
- General Purpose Loan Fee: $50
- Primary Residence Loan Fee: $100
Remember, the primary purpose of your TSP contributions is to secure your financial future in retirement. Therefore, carefully evaluating your need to borrow and exploring all available options before taking a TSP loan is a prudent financial decision.
Understanding TSP Loan Types, Eligibility, and Limits
To determine if a TSP loan aligns with your needs, it’s important to understand the different types of loans, eligibility requirements, and borrowing limits.
Types of TSP Loans: General Purpose vs. Primary Residence
TSP offers two loan types, each serving different purposes and with varying terms:
| Feature | General Purpose Loan | Primary Residence Loan |
|---|---|---|
| Purpose | May be used for any purpose | Specifically for the future purchase or construction of a primary residence and related closing costs. |
| Documentation Required | No documentation needed | Documentation is required to verify the purpose of the loan. |
| Repayment Term | 12 to 60 months | 61 to 180 months |
| Processing Fee | $50 | $100 |
TSP Loan Eligibility: Are You Qualified to Borrow?
You can borrow from your TSP account if you meet all of the following criteria:
- You have at least $1,000 of your own contributions and associated earnings in your TSP account (excluding mutual fund window investments unless transferred to a core TSP fund). Agency/service contributions and their earnings are not eligible for borrowing.
- You are currently employed as a federal civilian employee or a member of the uniformed services. Separated or retired participants are not eligible for new TSP loans.
- You are currently in pay status, as loan payments are deducted directly from your pay. You can borrow even if you have stopped making personal contributions.
- You have not fully repaid any type of TSP loan within the last 30 business days.
Primary Residence Loan: Specific Eligibility Rules
Primary residence loans have additional restrictions. They are strictly for the future purchase or construction of your primary residence, which can include:
- A house
- Townhouse
- Condominium
- Shares in a cooperative housing corporation
- Mobile home
However, primary residence loans cannot be used for:
- Reimbursement for prior expenses like earnest money or down payment deposits.
- Refinancing or prepaying an existing mortgage.
- Home additions or renovations to an existing residence.
- Buying out someone else’s share of your current residence.
- Purchasing land only.
- Buying a house you have already closed on.
Crucially, the primary residence must be purchased by you or your spouse.
TSP Loan Amounts: Minimum and Maximum Limits
-
Minimum Loan Amount: $1,000
-
Maximum Loan Amount: The maximum you can borrow is the smallest of these three calculations:
- Your own contributions and earnings in the TSP account, excluding any existing loan balance.
- 50% of your total account balance from your contributions and earnings (including any outstanding loan balance), or $10,000, whichever is greater, minus any outstanding loan balance.
- $50,000 minus your highest outstanding loan balance within the past 12 months.
For participants with both civilian and uniformed services TSP accounts, the combined balances and loan amounts are considered for calculations #2 and #3. Maximum loan amounts can fluctuate daily due to changes in TSP share prices. You can view your personalized maximum loan amounts when you log into My Account and navigate to the loans section.
Repaying Your TSP Loan: Ensuring Financial Responsibility
Proper loan repayment is critical, even though you are paying back into your own account. Failure to adhere to the repayment schedule can have significant financial repercussions.
Your loan payment amount remains fixed throughout the loan term, with exceptions only for agency transfers causing payroll schedule changes or loan payment suspensions during nonpay status.
-
Loan repayment must begin within 60 days of loan disbursement. The TSP notifies your payroll office to initiate deductions from your salary each pay period. It’s your responsibility to verify that loan payments have commenced and are accurate by checking your leave and earnings statement. Contact your agency or service if you notice any discrepancies or if payments haven’t started. Remember, you are ultimately responsible for loan repayment, regardless of any agency errors.
-
Repayment amounts are deposited back into your account and invested according to your current investment elections. Daily interest is calculated on your outstanding balance and is based on the time since your last payment. Note that TSP loan interest is not tax-deductible.
-
You can make extra payments via personal check, cashier’s check, money order, or one-time direct debit. However, direct debit payments are only applied to loans twice a month.
Separation from Service and Your TSP Loan
If you leave federal service with an outstanding TSP loan, you have three options:
- Keep the loan active: Set up monthly payments via check, money order, or recurring direct debits. The payment schedule will adjust to monthly, but the original loan term limits still apply.
- Pay off the loan: Pay the loan balance in full by the specified deadline.
- Loan Foreclosure: Allow the loan to be foreclosed. The taxable portion of the outstanding balance and accrued interest will be treated as taxable income by the IRS.
You are not eligible for new TSP loans after separating from federal service.
Consequences of Delinquent TSP Loans
Failing to make timely loan payments as per your Loan Promissory Note can lead to serious financial consequences, especially if you are still working or are under 59½ and subject to early withdrawal penalties. You bear the responsibility for ensuring correct and timely loan payments, irrespective of agency payment errors.
If your loan becomes delinquent, the taxable portion of the outstanding balance and accrued interest is reported to the IRS as taxable income. If you are under age 59½, you may also incur an additional early withdrawal penalty tax. Refer to the TSP booklet Tax Rules about TSP Payments (204kb) for detailed information and exceptions.
-
For active federal employees or uniformed service members with a delinquent loan: The loan becomes a “taxed loan,” permanently reducing your TSP account balance unless repaid. A taxed loan also counts as one of the two loans permitted per account and is factored into your maximum loan amount calculations. You can repay a taxed loan until you separate from federal service.
-
For separated participants with a delinquent loan: The loan is foreclosed, and the IRS treats the outstanding balance and accrued interest as a distribution. Separated participants cannot repay a foreclosed loan.
TSP Loans and Nonpay Status
If you enter approved nonpay status while you have a TSP loan, your loan payments will be temporarily suspended. Interest continues to accrue during this suspension, but making voluntary payments can reduce the accumulated interest.
Loan payment suspension lasts until you return to pay status or for a maximum of one year, whichever comes first. An exception applies for nonpay status due to military service, where suspension continues until you return to pay status, even if longer than a year. In military service cases, the loan term is extended by the duration of your service.
For detailed information on nonpay status and TSP loans, consult the TSP fact sheet Effect of Nonpay Status on Your TSP Account (89kb). For military service related nonpay status, see TSP Benefits That Apply to Members of the Military Who Return to Federal Civilian Service (89kb).
Is Borrowing from Your TSP the Right Choice for You?
TSP loans offer a unique way for federal employees and uniformed service members to Borrow Money Online, leveraging their retirement savings. They often come with competitive interest rates and the benefit of paying interest back to yourself. However, it’s crucial to carefully weigh the potential impact on your long-term retirement savings and understand all the rules and implications before making a decision. Consider your financial situation, explore all available borrowing options, and make an informed choice that aligns with your overall financial well-being.
