3 Considerations Before You Borrow From Your Thrift Savings Plan Account
The Thrift Savings Plan was designed to provide you with income after you
retire. The amount you will have in your account depends on the decisions you
make -- how much you contribute, how you invest, and whether you take money out
of your account before retirement.
The Thrift Savings Plan loan program is an important benefit that allows
participants access to the money in their accounts. However, taking a loan could
result in less money for you at retirement. So, before you borrow from your
account, consider the following:
- 1. If your TSP investments earn higher rates of return than the interest rate
on the loan, the loan interest you pay will not be equal to the earnings you
would have received if the money had remained in your account. This means that
your TSP account will be smaller than it would have been if you had not borrowed
from it.
- If you are not able to contribute as much to the TSP because of the
financial burden of your loan payments, your TSP account will not grow as
quickly. If you are a FERS employee and you have to reduce your contribution
rate to below 5%, you will also give up agency matching contributions.
- A TSP residential loan is not a mortgage. Therefore, the TSP loan interest
payments are not tax deductible, as they might be for a mortgage or home equity
loan.
Before you take a TSP loan, make sure you realize its potential effect
on your retirement income and decide whether it makes more sense to borrow from
another source.
Before you take a TSP loan, make sure you realize its potential effect on
your retirement income and decide whether it makes more sense to borrow from
another source.
Source: TSPBK04 (6/06)
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