TSP Loan Help

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joespo
Posts: 1
Joined: Tue Aug 07, 2018 2:06 pm

TSP Loan Help

Post by joespo » Tue Aug 07, 2018 2:14 pm

Hi B-Heads!

I'm in kind of sticky situation where I recently took a loan out of my TSP account to put a down payment on a house, but then got a new, higher paying job that I couldn't pass up. TSP requires you to pay back the loan in full 90 days from separation from federal service, or it is reported as taxable income with a 10% penalty for early withdrawal. I would like to avoid this at all costs, but obviously I don't have the funds to pay it back. Does anyone have any advice on what to do? I've been looking at personal loans, but the rates are terrible. Are there personal IRAs that accept rollovers and transfers of loans that you can pay back there? Thanks for the help!

Slacker
Posts: 569
Joined: Thu May 26, 2016 8:40 am

Re: TSP Loan Help

Post by Slacker » Tue Aug 07, 2018 3:19 pm

Do you have any of these options?
1. Emergency fund
2. Roth IRA contributions
3. HELOC
4. Taxable account savings - pay the capital gains taxes and sell shares
5. Ask parents for help???

...or just start cutting expenses to the bone and pay as much of the loan as you can in 90 days and take a tax hit.

Will the personal loans really be at a higher interest rate than the 10% penalty + your top income tax rate? (guessing this could be at least 32% or 34%, especially if you are now earning a higher income at your new job).

delamer
Posts: 5483
Joined: Tue Feb 08, 2011 6:13 pm

Re: TSP Loan Help

Post by delamer » Tue Aug 07, 2018 7:40 pm

Have you figured out in the worst-case scenario how much you would owe in taxes if you can’t repay any more of the loan?

Having that number at hand might help you determine your best options.

You can’t do anything with an IRA to avoid the taxes.

nps
Posts: 539
Joined: Thu Dec 04, 2014 10:18 am

Re: TSP Loan Help

Post by nps » Tue Aug 07, 2018 8:10 pm

Are you related to this guy:

viewtopic.php?t=253950

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Earl Lemongrab
Posts: 4949
Joined: Tue Jun 10, 2014 1:14 am

Re: TSP Loan Help

Post by Earl Lemongrab » Wed Aug 08, 2018 4:40 pm

How recently? This year? There are new laws concerning loan repayment.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

jminv
Posts: 480
Joined: Tue Jan 02, 2018 10:58 pm

Re: TSP Loan Help

Post by jminv » Wed Aug 08, 2018 5:06 pm

You're making more money. Take out a personal loan and pay it off quickly. The peer to peer loans have decent rates and quick funding. Lots of lenders, few borrowers. Competition for your interest. Or look at the post above about new rules.

delamer
Posts: 5483
Joined: Tue Feb 08, 2011 6:13 pm

Re: TSP Loan Help

Post by delamer » Wed Aug 08, 2018 5:22 pm

Earl Lemongrab wrote:
Wed Aug 08, 2018 4:40 pm
How recently? This year? There are new laws concerning loan repayment.
I don’t think the new law pertains to the TSP.

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Earl Lemongrab
Posts: 4949
Joined: Tue Jun 10, 2014 1:14 am

Re: TSP Loan Help

Post by Earl Lemongrab » Wed Aug 08, 2018 6:37 pm

delamer wrote:
Wed Aug 08, 2018 5:22 pm
Earl Lemongrab wrote:
Wed Aug 08, 2018 4:40 pm
How recently? This year? There are new laws concerning loan repayment.
I don’t think the new law pertains to the TSP.
Well, that's possible. I thought I recalled that it applied to all plans with loans, but that could well be incorrect.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

MnD
Posts: 3578
Joined: Mon Jan 14, 2008 12:41 pm

Re: TSP Loan Help

Post by MnD » Wed Aug 08, 2018 11:18 pm

Take out some sort of 2nd mortgage or HELOC to pay off the TSP loan. You will probably get a less than ideal rate due to recent purchase but hopefully some entity will underwrite it. Then after a period of time refinance it to a single mortgage loan at the best market rates.
The new higher paying job will cover this minor problem and costs in no time.

megabad
Posts: 362
Joined: Fri Jun 01, 2018 4:00 pm

Re: TSP Loan Help

Post by megabad » Thu Aug 09, 2018 12:34 pm

joespo wrote:
Tue Aug 07, 2018 2:14 pm
Hi B-Heads!

I'm in kind of sticky situation where I recently took a loan out of my TSP account to put a down payment on a house, but then got a new, higher paying job that I couldn't pass up. TSP requires you to pay back the loan in full 90 days from separation from federal service, or it is reported as taxable income with a 10% penalty for early withdrawal. I would like to avoid this at all costs, but obviously I don't have the funds to pay it back. Does anyone have any advice on what to do? I've been looking at personal loans, but the rates are terrible. Are there personal IRAs that accept rollovers and transfers of loans that you can pay back there? Thanks for the help!
I prefer the taking out Roth IRA contributions and use savings route as suggested above. Otherwise, I would look for a 0% balance transfer credit card and pay it off in 12 months.

joespo
Posts: 1
Joined: Tue Aug 07, 2018 2:06 pm

Re: TSP Loan Help

Post by joespo » Thu Aug 09, 2018 12:45 pm

Earl Lemongrab wrote:
Wed Aug 08, 2018 4:40 pm
How recently? This year? There are new laws concerning loan repayment.
Yes this year, do you know the new laws?

User avatar
Earl Lemongrab
Posts: 4949
Joined: Tue Jun 10, 2014 1:14 am

Re: TSP Loan Help

Post by Earl Lemongrab » Thu Aug 09, 2018 1:08 pm

joespo wrote:
Thu Aug 09, 2018 12:45 pm
Earl Lemongrab wrote:
Wed Aug 08, 2018 4:40 pm
How recently? This year? There are new laws concerning loan repayment.
Yes this year, do you know the new laws?
Others have stated that they don't apply to TSP, so you'll need to check.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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