Federal Guide to TSP Loans

How do TSP loans work? Here is an overview of the process.

The Thrift Savings Plan (TSP) is a critical part of a successful retirement goal for FERS retirees. Understanding how to access your TSP in retirement is key, but you also have ways to obtain your funds while working.

One way to retrieve TSP funds while employed is through TSP loans. As the name implies, a TSP loan is simply borrowing money from your retirement account.

Before taking a TSP loan, the full impact of withdrawing retirement funds early should be considered, as you will have to repay the loan with interest. Extenuating circumstances may bring about the necessity for you to dip into the TSP before reaching retirement.

Let’s examine your options for acquiring a TSP loan. 

The regulations mentioned below are general TSP loan rules. The CARES Act of 2020 made some changes to accessing your TSP for this year. See our CARES Act blog for specifics.

Types of Loans

The TSP offers two types of loans: residential and general purpose. As the name suggests, the residential loan can only be obtained for the purchase or construction of a primary residence. A residential loan cannot be used to refinance an existing mortgage or for simply making repairs to an existing home. A residential loan has a repayment period of one to fifteen years and documentation is required. 

The second type of TSP loan is a general purpose loan which can be taken for any use. In contrast to the residential loan, a general purpose loan does not require documentation and has a repayment period of one to five years. 

It should be noted that the smallest loan amount you can borrow is $1,000 and you may have only one general purpose loan and one residential loan outstanding at the same time. 

Who Can Apply?

To borrow from your TSP, several stipulations must be met.

  • Have at least $1,000 of your own contributions in your account.
  • Must be currently employed as a federal civilian employee or member of the uniformed services
  • Have not repaid a TSP loan (of the same type) in full within the past 60 days
  • Have not had a taxable distribution on a loan within the past 12 months, unless the taxable distributions resulted from your separation from federal service 

How to Apply

When applying for a general purpose loan, you should be able to complete the process entirely online, unless your situation meets one of the following scenarios. If you are requesting money through an electronic funds transfer or you are a married FERS or uniformed services participant and do not have an approved Form TSP-16 on file, then you will need to print out and submit the loan agreement for processing. Whether completing the application online or by printing it out, the first step is to log in to your TSP.gov account and begin the process. You may also fill out Form TSP-20 and mail or fax it to TSP if you do not wish to submit your information via the website. 

The process for requesting a residential loan is somewhat different as certain documentation is required. See the TSP.gov Loans publication for more about this process. 

Lastly, it’s important to be aware that a TSP loan has no effect on taxes unless it is not paid back before retirement. If not repaid, a TSP loan may be treated as a taxable distribution and influence your taxes. 

Understand Your Options

As a federal employee, you have a wide number of options. The decisions you make while working—like whether or not to take a TSP loan—will impact your retirement. It’s essential to be familiar with what your choices are and the potential consequences of your actions.

Disclosure: The information contained in these blogs should not be used in any actual transaction without the advice and guidance of a tax or financial professional who is familiar with all the relevant facts. The information contained here is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for the individuals’ specific circumstances or needs and may require consideration of other matters. RBI is not a broker-dealer, investment advisory firm, insurance company, or agency and does not provide investment or insurance-related advice or recommendations. Brandon Christy, President of RBI, is also president of Christy Capital Management, Inc. (CCM), a registered investment advisor.

About the Author

Brandon Christy, CPA, PFS, is the founder and president of Retirement Benefits Institute, Inc. He is an established leader in contracted federal retirement benefits education, and his company has trained over 10,000 federal employees to help them gain clarity and confidence in retirement.