Retirement & Financial Planning Report

You may gain access to your TSP account during your working career through loans and in-service withdrawals.

There are two types of loans—general purpose and residential. The former can be repaid over one to five years and the latter over one to 15 years. The loan origination fee is $50, which is deducted from the loan payout.

When you take a TSP loan, you are borrowing from yourself. Loans are repaid through payroll allotments over the payment period specified in the loan agreement. You can repay the loan in part or in full before the end of your loan repayment schedule without penalty. You can have only one loan of each type outstanding at any one time and after paying off a loan there is a 60-day waiting period before taking out another loan of the same type. The minimum is $1,000 and the maximum depends on several variables; contact the TSP to determine your maximum.

If you leave federal service you must repay the loan in full, including interest on the outstanding balance to the date of repayment. If you do not repay the loan within the required time frame, the TSP will declare a distribution, meaning you will be liable for taxes and penalties for the taxable portion of the loan.

There are two types of allowable withdrawals while in service—age-based and financial hardship. As with loans, money taken out in these withdrawals currently is taken proportionately from traditional and Roth balances for those who have both. However, this is due to change in September, when you will have a choice of a proportionate withdrawal or choosing to have all the money come from one type of balance, assuming you have enough in that balance to cover the request.

Age-based withdrawals are available to those age 59 ½ or older. They can make a one-time in-service withdrawal from their accounts of at least $1,000, up to the vested amount of the account. This policy, too, is due to change in September, when up to four such withdrawals per year will be allowed.

Continued contributions to the TSP after making such a withdrawal are allowed while still employed.

Financial hardship withdrawals must be at least $1,000, up to the amount of your own contributions and their associated earnings or the amount of your demonstrated need, whichever is smaller. You must provide information on family income and expenses and supply documentation supporting the amount of your request. After you make a financial hardship withdrawal, you cannot contribute to your TSP account for six months, meaning that for FERS employees the agency matching contributions stop during that time as well.

More on TSP Loans and In-Service Withdrawals at ask.FEDweek.com