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.
- 2. 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.
- 3. 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.