What Effect Will a TSP Loan Have on My Ability to Withdraw Funds After I Retire?

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By on June 8, 2017 in Q&A, Retirement with 0 Comments

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Q: I will be retiring at the end of this year and I have an outstanding TSP loan. What effect will this have on my ability to withdraw funds from my TSP once I retire?

A: Having an outstanding loan will keep you from being able to make any withdrawals from your Thrift Savings Plan. The TSP will not process any withdrawals until your loan is closed.

You can close your loan by repaying it, taking a taxable distribution of the outstanding amount, or a combination of the two. It is required that the loan be closed within 90 days of the date that the TSP receives notice from your agency of the fact that you have separated from federal service.

Once the TSP is notified of your separation, they will send you a notice that contains instructions for closing your loan, including the date by which the loan must be repaid to avoid a taxable distribution. It often takes as much as 30 days from the day you separated for the TSP to notify you. If you do not repay the loan and the TSP declares a taxable distribution on the 90th day after your separation, you could have waited for four months before you could withdraw from your account.

Agencies can request to have John Grobe, or another of Federal Career Experts' qualified instructors, deliver a retirement or transition seminar to their employees. FCE instructors are not financial advisers and will not sell or recommend financial products to class participants. Agency Benefits Officers can contact John Grobe at [email protected] to discuss schedules and costs.

© 2017 John Grobe. All rights reserved. This article may not be reproduced without express written consent from John Grobe.

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About the Author

John Grobe is President of Federal Career Experts, a consulting firm that specializes in federal retirement and career transition issues. He is also affiliated with TSP Safety Net. John retired from federal service after 25 years of progressively more responsible human resources positions. He is the author of Understanding the Federal Retirement Systems and Career Transition: A Guide for Federal Employees, both published by the Federal Management Institute. Federal Career Experts provides pre-retirement seminars for a wide variety of federal agencies.

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