TSP Loan : The Detail Process

tsp loan

TSP loan is a simple way of having access to your accumulated amount in times of need (any time before retirement). You can borrow money from your account if you’re eligible for the loan by drawing out a TSP Loan application and then applying for it.

Thrift Savings Plan aims to provide income source for you even after your retirement, provided you are from particular service sectors. It is to be noted that the Federal Retirement Thrift Investment Board governs this program.

The TSP allows only two kinds of loans, namely Residential and General Purpose. Before applying for a TSP loan, it is highly recommended that you consider the pros and cons of taking out the loan. Once your loan application is approved, you can draw out the money from your TSP account. However, the loan must be repaid with interest and is deducted from upcoming payrolls.

The Process of TSP Loan Application

Depending on the types of TSP loans, the application process is also of two categories. In the case of a General Purpose loan, the total application and agreement process is available online. Your loan approval may take up to 3 working days but 10-15 days may surpass before you can take out the check.

However, according to Thrift Investment Board, if you fall under any of the following conditions, you will have to go through the Online Application Process, print out the Loan Agreement and then submit it for processing. This process might even take several weeks to be finalized.

  • If you are a candidate for residential loan
  • If you are asking for the fund using Electronic Fund Transfer (EFT).
  • If you are a married FERS or uniformed services member without an approved Form TSP-16 or TSP-U-16 on file.

Irrespective of your loan application process, the best website to apply for the loan is the TSP website (tsp.gov). You may submit only one application per account at a time; multiple applications will only prolong the process. If the loan application is successful, there is a $50 fee.

Different Types of TSP Loan

The minimum accepted loan amount is $1,000 and the maximum amount is $50,000, given that loan candidates have enough money in their TSP account. The Thrift Savings Plan program allows only two types of loans:

  • General Purpose Loan

The loaned money can be used for any purpose. This loan does not require any documentation but has to be repaid within 1-5 years period.

  • Residential Loan

This type of loan requires documentation and the period of repayment of loan ranges from 1-15 years.

This loan can only be used for purchase or construction of a primary residence. This may be a house or condominium; shares in cooperative Housing Corporation; townhouse, boat, mobile home or a recreational vehicle as long as it is your primary residence.

A person is not eligible for this loan in case of certain scenarios. These are:

  1. Buying out someone’s share your existing residence
  2. Refinancing or prepaying a standing mortgage
  3. For restorations or repairs or for acquisition of land only

Eligibility of Getting the TSP Loan

One can request or apply for only one type of TSP loan at a time. If one possesses both a civilian account and a uniformed services account, they’ll be eligible for one of each type of loan from each account.

  • General Eligibility

One is eligible for a General TSP Loan under the following circumstances:

  1. Employee of the Federal Government or member of uniformed services
  2. Possesses an active pay status
  3. Owns only one unresolved General Purpose loan and one unresolved Residential loan from one TSP account at a time
  4. TSP account contains at least $1,000 from contribution and income
  5. There must not be any repayment of TSP loan of same kind in full within last 60 days. For anyone possessing both accounts, the 60-days waiting duration applies for each account.
  6. Taxable distribution due to discontinuation from Federal Service is not a factor. But any other reason for taxable distribution in the last 12 months will prevent you from being eligible.
  7. No court order against TSP account
  • Residential Eligibility

Along with the aforementioned conditions of general eligibility, residential eligibility consists of additional conditions like:

1. Conditions for documentation
  • They must be from a third party
  • Be dated from 24 months ago from the expiration data on the TSP Loan Agreement
  • You/spouse has to be purchaser and purchased residence must be for yourselves
  • Mention of purchase or construction price
  • Mention of full address of primary residence
  • Signatures of buyer and seller in contracts only
Options feasible for purchase
  • House
  • Condominium
  • Townhouse
  • Boat
  • Shares in Cooperative Housing Corporation
  • Recreational Vehicle
  • Mobile Home
Options that will make you ineligible for loan
  • Refinancing or refunding standing mortgage
  • Reconstruction or renovation of existing residence
  • Buying out someone’s share in your current residence
  • Acquisition of land only
2.You and your spouse (in case your are married) must buy the primary residence in fraction

Minimum and Maximum Range of  Loan Amount

  • Minimum Loan Amount
  1. The minimum loan amount has to be $1,000.
  2. Of the total amount in your TSP account, the part generated from your income and contribution must be equal to the minimum loan amount.
  • Maximum Loan Amount

The maximum loan money to be borrowed is the lowest of the following:

  1. Your own contribution from income to the TSP account and the amount of profit it generated (not taking into account any unresolved loan money)
  2. Whichever is greater: 50% of your bestowed account balance including any unresolved loan balance or $1,000 minus any unresolved loan balance as according to the International Revenue Service (IRS) vested Balance Test.
  3. If any loan in the last 12 months is present, $50,000 will be deducted from the highest outstanding loan balance. If the loan was open at any time in the last 12 months and is now closed, it will still be eligible for this calculation.

If you happen to have both civilian account and uniformed services accounts, the combined account balance and outstanding loan amount will be considered for the calculation of the maximum loan amount.

Interest and Other Relevant Cost of the TSP Loan

The TSP Loan Interest rate you pay is the same as the G fund rate at the time of your loan application process. And when it comes to the costs, if you borrow from your TSP account, you obviously flunk the earnings you would have earned if you had not taken the loan in the first place.

Moreover, the amount you will be paying yourself back (with interests) will come your raw payment rather than investment performance. If the interest turns out to be less than what your money could have earned had you not taken out the loan, you will have less money saved even after you have repaid your loan.

Also, you’ll have to pay a loan fee of $50 upon completion of the loan payment. If you fail to repay your loan in accordance with the Loan Agreement, the TSP must report your unpaid amount to IRS as a taxable distribution.

Necessary Documentation of the TSP Loan

For approval of the loan, you have to submit the completed Residential Loan Agreement along with all necessary documentation. Documentation is needed only in case of Residential TSP Loan and the requirements have been highlighted as follows.

  • Residential Loan

All documents must be from a third party. Also, the documents cannot be dated more than 24 months ago from the date in TSO Loan Agreement.

  • Special Requirements

The requirements are very basic and further documentation might be required in only some cases.

  • Cooperative Purchase

Proof you own shares in a Cooperative Housing Corporation.

  • Construction Purchase

Submission of documents regarding building permits, building receipts and other third-party documents.

  • Mobile home or Recreational Vehicle Purchase

Submission of serial number, complete description of facilities and accommodations (RV) and signed agreement that the RV shall be your primary residence.

  • Boat Purchase

Serial number of the boat and a signed statement from the boat’s location that confirms your primary residence

TSP Loan Process and Disbursement

The processing duration of the TSP Loan varies depending on the type of loan as well as the medium used for applying for the loan. Upon successful completion of your loan application online, you are supposed to get the loan money in your hands within 7-10 days. You have the leverage of keeping your updates in a tab using the website tsp.gov or by contacting TSP.

In case of loan disbursement, if your loan was applied for online, your loan money will be sent to you as a check in your mail address. If your TSP account is invested in more than one fund, your loan amounts are deducted proportionally.

Repaying Process of Your Loan

Your upcoming paychecks pay off the TSP loan. They basically perform a simple deduction of the main borrowed amount plus the interest.

And, if at any point you fail to repay the loan, your loan will become a taxable distribution. In case of a General Purpose loan, you will have 1 to 5 years to pay it back and in case of a Residential Purpose loan, you will have 1 to 15 years to pay back the original amount plus accrued interest.

How to Track your Loan

The TSP is responsible for reporting your loan proceedings to you. They convey it through your participant statement every three months. You must take note of this information and keep in mind to complain about any inconsistencies to the agency.

If you want to keep a tab on your loan balance and payment updates, you can take a look in the My Account: TSP Loans part on the TSP site.

FAQ

How do I get a loan from my TSP?

To get a loan from your TSP account, you must either be a Federal employee or a member of uniformed service in pay status. You are advised to check other conditions that determine your eligibility for the loan. The least you can borrow is $1,000 and $50,000 is the maximum limit; it depends on your TSP savings. A no court order status against the TSP loan is required.

How long does it take to get your TSP loan?

The loan processing duration depends on what medium you used to apply for it. If you go through the whole application process online, make sure to have your check sent off within 3 working days. It may take you 5 more working days to receive the check.

If you apply for the loan in person using the Loan Agreement, it will take several weeks for TSP to process your loan and send the check to you. Please bear in mind to submit all data accurately. Invalid applications will just further delay the process.

Do TSP loans show on credit report?

No, TSP loans are not shown on credit report. Technically, this is your money and you cannot borrow from yourself. TSP money doesn’t have to be listed as the loan in your mortgage application. In case you do need to explain the source of money, you may state them as funds from retirement savings.

What happens to my TSP loan if I leave Federal service?

When you decide to leave Federal service, there is a time period within which you have to pay back your loan. That time period is 90 days. When the TSP is notified of fact that you have left service, they send you a basic instruction booklet explaining how you should close out the loan and the time within which that has to be done. You cannot make any withdrawals before fully paying the loan.

Can you have two TSP loans?

Residential and general purposes are two forms of TSP loans. The first one has a repayment duration of 1 to 5 years. As for the second one, the repayment period is 1 to 15 years. No documentation is necessary for a General Purpose loan. However, you are required to submit documentation to support a Residential Purpose loan request. You can have two loans outstanding at any given time, but only one loan of each type.

How much of my TSP can I borrow?

Your minimum TSP loan amount is $1,000. On other hand, the maximum TSP loan limit is $50,000. This is given that you have that much amount collected from your own savings in your TSP account.

Are TSP loans taxed?

When you fail to repay your loan amount in time, the Internal Revenue Service (IRS) turns your unpaid amount (and any interest on that) into taxable income. This means that you’ll be paying the unpaid amount as your tax under the jurisdiction of Government.

What is the Interest rate on a TSP loan?

The TSP Loan interest rate is the same as the current G Fund interest rate, which is 3.0% at present.

Can you borrow from TSP after retirement?

A major eligibility factor of TSP loan is being a member of Federal service with an active pay status. Hence, no, you cannot borrow from TSP after retirement.

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