Can I Borrow Agains the Tsp for Home Improvement
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| gOf_Marcus | #1 Posted : Thursday, July 17, 2008 v:52:48 AM(UTC) | ||
| Rank: Newbie Groups: Registered | My home is in need of extensive work both inside and out, which will amount to several thou dollars. Is it smart to get a TSP home imporovement loan to do this? I owe $150,000 on the place, I am 54 and plan to retire when I am 65. I am a CSRS employee. | ||
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| northpuget | #2 Posted : Thursday, July 17, 2008 8:48:02 AM(UTC) | ||
| Rank: Senior Fellow member Groups: Registered | I wouldn't do information technology. Don't borrow from your retirement funds for anything curt of saving a life. You can get a home equity loan or refinance instead, if you lot don't have the cash. | ||
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| Rob | #3 Posted : Thursday, July 17, 2008 10:36:53 AM(UTC) | ||
| Rank: Rookie Groups: Registered | How about a Home Equity Line of Credit or Home Equity Loan? At least the involvement is deductible... | ||
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| Jake1000 | #4 Posted : Th, July 17, 2008 7:07:47 PM(UTC) | ||
| Rank: Senior Member Groups: Registered Was thanked: 3 time(s) in iii mail service(s) | taxed twice! one time when you "pay back yourself" since its with "afterwards tax" dollars. So taxed once again when you are set to retire and take withdrawels. | ||
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| oracle738 | #5 Posted : Thursday, July 17, 2008 ix:fifteen:05 PM(UTC) | ||
| Rank: Groupie Groups: Registered | Yous tin get a loan for just about anything, Home, Cars, Education, etc., only the i thing you cannot go is a loan to fund your retirement - Don't do it! | ||
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| UnKnown | #vi Posted : Thursday, July 17, 2008 9:21:09 PM(UTC) | ||
| Rank: Newbie Groups: Registered | I think an disinterestedness line or loan april is pretty high, 10 %? and unless the op gets a lower charge per unit, he/she shouldnt refinance. | ||
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| oracle738 | #7 Posted : Thursday, July 17, 2008 9:51:07 PM(UTC) | ||
| Rank: Groupie Groups: Registered | The Retirement Nestegg should never be touched except for dire emergencies, i.e. every bit someone said before, to save a life. There are plenty of other options available for financing your needs/wants. After all, i of the near of important goals in life is working towards a comfy retirement. Credit ratings, interest rates and tax deductions - who cares? That's non the result here. Bottom line is, if you outset tapping into your nestegg, y'all'll regret information technology subsequently on...... | ||
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| ChrisC | #8 Posted : Thursday, July 17, 2008 9:56:xxx PM(UTC) | ||
| Rank: Advisor Groups: Registered | So, you might want to search the threads here. It might not be the smartest manner of financing your home improvements, merely it's certainly not the dumbest way equally some might have you believe. You're in CSRS and then I bet you're relying primarily on your pension annuity stream than the TSP for retirement; y'all're going to retire at 65 so you accept ample time to repay the loan; and if yous have a lot of your coin in the Thousand-Fund or are thinking about allocating more money to the G-Fund then you lot're non really compromising any investment opportunity since the TSP loan is paid back at the same rate as the One thousand-Fund rate. (The so-chosen double tax affair ignores the fact that when you draw out the funds initially, you pay no tax on that withdrawal -- and the "after-tax" payments of interest are quite marginal -- information technology is substantially an involvement-free loan.) The knee-**** reaction is "don't do it." I have done it twice in my life from another 401K but I have used home disinterestedness lines for a lot of other borrowings (for things like major abode improvements, etc.) The first line of borrowing should exist your dwelling house equity only y'all might non be able to go that credit these days so easily, especially if you're dwelling house has little equity. Weigh all considerations, including the ease in which you might be able to obtain the loan. (I have never borrowed from the TSP but my 401K loans were one-24-hour interval blessing and the money was in the bank in 2 days.) [why does the word "J E R Thou" get deleted?] | ||
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| gOf_Marcus | #9 Posted : Thursday, July 17, 2008 10:47:37 PM(UTC) | ||
| Rank: Newbie Groups: Registered | Considering how bad the economy is right now, and the fact that the loan will automatically be repaid dorsum into my TSP and there is no double tax similar someone above says, I recollect it may exist the best way to become. I will actually be repaying myself and I take plenty of fourth dimension to practice so, and then I tin spread information technology out for five-10 years so it won't injure me as prices ascension rapidly. I don't take to go through a credit check, I have borrowed from the TSP fund earlier for small short term loans and those went very well. I am inclined to do information technology. I am CSRS then TSP is a supplemental income for retirement equally stated in a higher place. I accept been in the Federal Government since 1979 and never employed by anyone else since I graduated higher, my wife is on SS inability right now. Any more than thoughts? | ||
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| oracle738 | #10 Posted : Thursday, July 17, 2008 11:08:33 PM(UTC) | ||
| Rank: Groupie Groups: Registered | that monies taken out from TSP basically reduces earning power and tin can never be replaced (the gains). You will exist losing the power of Fourth dimension and Compounding on the monies removed. All in all, borrowing from TSP is a bad move.......Merely if your future is not dependent on TSP and you have other sources of retirement income available, what the hey? | ||
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| ChrisC | #11 Posted : Friday, July 18, 2008 2:46:09 AM(UTC) | ||
| Rank: Advisor Groups: Registered | quote: Once more, not so, if the borrowing comes from his G-Fund! If his TSP has 100K in it and $60K is in the C Fund and $40K is in the G Fund and he takes out a $40K loan entirely from the Thou Fund, tell me how his "earning ability" is reduced and can never be replaced? His loan repayment would be essentially replicating the return he would get on his current investment in the Thou-Fund. And as long every bit he continues to contribute to the TSP, he has not financially harmed himself. Simply what the heck, if people insist that there is something wrong with the motion-picture show, then perhaps it's not the movie just the lens people are viewing it through! [This message was edited past ChrisC on July xviii, 2008 at 03:25 PM.] | ||
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| g_whitnall | #12 Posted : Friday, July 18, 2008 7:28:31 AM(UTC) | ||
| Rank: Newbie Groups: Registered | Indeed, over the past several months, he'd have been better of than in any of the funds (other than 1000). | ||
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| ChrisC | #thirteen Posted : Friday, July 18, 2008 7:54:55 AM(UTC) | ||
| Rank: Advisor Groups: Registered | Such heresy GordonW. I'm afraid yous're beginning a level of analysis that is beyond the comprehension of those who repeat the stock respond "don't do information technology," which in most cases is the correct answer but could be the wrong answer for the original poster. I think we've beaten this enuff now. | ||
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| Jake1000 | #14 Posted : Fri, July 18, 2008 9:34:46 AM(UTC) | ||
| Rank: Senior Member Groups: Registered Was thanked: 3 time(southward) in 3 mail service(south) | I notwithstanding say (similar I did above) dont to it. Some more than classification why: The money you take out of your 401(k) for the loan will not be growing. Most people, while paying back the loan, stop making pre-tax contributions, which is a double whammy. Another link on 401k/TSP Loans: | ||
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| freeageless | #15 Posted : Friday, July xviii, 2008 3:05:23 PM(UTC) | ||
| Rank: Senior Member Groups: Registered Thanks: 12 times | Nissan25, | ||
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| Nittany79 | #16 Posted : Friday, July 18, 2008 xi:12:53 PM(UTC) | ||
| Rank: Rookie Groups: Registered | Scenario #ane - no loan - final TSP balance is 100k In scenario #2, you lot can't pay extra taxes on what you don't have (-5k) considering yous lost out on returns by taking the loan. Now, does the 5k loss compare to the cost of a loan exterior the TSP? In scenario #3 the extra 5k, or a portion of, could in fact be "double taxed," just it wouldn't actually matter because your "market" timing in taking out the loan was vivid and you lot "profited" by taking a loan even though you may technically pay more than taxes. So when analyzing the wisdom of taking a TSP loan, the important factors are market returns versus the toll of an outside loan. Taxes are of no impact in the analysis. In nigh cases a TSP loan is probably not a good idea, but too many times I hear people talk nearly pretax, aftertax, or double tax and its just not relevant to the give-and-take... imho | ||
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| ChrisC | #17 Posted : Saturday, July nineteen, 2008 1:xx:29 AM(UTC) | ||
| Rank: Advisor Groups: Registered | Originally posted by nissan25: The money you take out of your 401(k) for the loan will not be growing. Most people, while paying back the loan, stop making pre-tax contributions, which is a double whammy. This is not right. The coin he takes out is growing at the involvement charge per unit of the G-fund. He borrows the money and the funds are replaced by a promissory annotation from him to his account and the principal and involvement are then paid to his account, so how is his coin non growing? You tin can quibble about the rate of render but it's not correct to say that his money is non growing. Equally to your betoken of him stopping contributions, the original poster did not say he would do that and he has more the aplenty time to continue to fund an account that is not his primary source of funding his retirement. Since yous're paying back the loan with after-taxation money, taking distributions from that money will crusade some funds to have been taxed twice. Repeating this double taxation statement doesn't make it correct. If you could explicate with greater specificity how this significantly results in financial harm, that would help. As to the other points, the affiche plans to stay at least five years beyond the date the residuum would be due on the borrowing. Doesn't strike me that he's risking a early distribution of his business relationship. | ||
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| Jake1000 | #18 Posted : Sat, July 19, 2008 6:42:40 AM(UTC) | ||
| Rank: Senior Member Groups: Registered Was thanked: 3 time(due south) in 3 post(s) | 28% avg. tax bracket "paying back yourself" with "subsequently revenue enhancement dollars" for the TSP loan. At present when you lot retire (assume slighlty lower taxation bracket...but who knows the mode things are going). You lot owe taxes again on the funds you take paid back to yourself, when you lot offset to withdraw that $$$. Besides, compound involvement lost (that can vary) the interest charged to "pay back yourself" paying back "yourself-loan" with your "take abode" coin thats been taxed Paying taxes again when you withdraw the funds at retirement. Unless someone thinks different, allow me know. Just my opinion. | ||
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| ChrisC | #19 Posted : Saturday, July xix, 2008 9:04:eighteen AM(UTC) | ||
| Rank: Counselor Groups: Registered | Nissan25, you're but repeating yourself when you say your repayments of the loan are with after-taxation dollars and when yous draw on your deferred retirement business relationship y'all get taxed on the withdrawal -- you're not adding any meaningful analysis. Permit's break it down more carefully: You have out a loan from your TSP account -- yous essentially have cashed out pre-taxation contributions plus whatsoever deferred income on those contributions -- and you've paid no taxes on that loan distribution. It'south something that gets glossed over in your analysis, by the way. Let's put some numbers to this issue: You lot borrow $50K from your TSP and it's entirely from the funds y'all have in your Thou-Fund; so this is entirely, a market-rate neutral event, in terms of investment opportunity lost or gain as a result of the loan. Permit's say that your total return on your $50K in the G-Fund had been 100 per centum as you've had these funds in the Fund for around 13 years with an annual rate of render of half-dozen.25 pct. So, when you have out the $50K you've actually taken $25K in tax deferred income and no gain has been recognized on that amount -- sounds like a sweet deal to me. Permit's say the interest charge per unit is 4 percent on your loan from TSP. Using an online amortization calculator, the total interest you would pay over four years is approximately $4200. Thus, you volition exist paying back the loan with and so-called after tax dollars of around $54,200. At present, when e'er I buy something, I'chiliad always paying so-chosen after tax dollars, so there'due south naught significant about that, right? But y'all appear to call up that there's some significance when the loan is repaid and X years after i withdraws a portion of that amount. I judge I don't fully appreciate the concern.Using my example, the borrower'southward repayment of $50K is tax neutral, is it non? Indeed, he recognized no gain on the distribution of loan proceeds and merely paid it dorsum on money he's been taxed before. Now, the borrower is paying an boosted $4200 with after-taxation dollars and he does go taxed on that amount again when that amount is withdrawn, but in the greater scheme of things, peculiarly if his tax bracket is lower than when he took out the loan, is this really all that pregnant? It'southward non similar the borrower become***** with the entire taxation bite the kickoff time he withdraws $4200, if ordinary accounting principles were used. And the borrower does get the use of tax-deferred income for 4 years. Look, I would never suggest anyone employ their TSP account for credit purposes but because information technology's available. Just the "don't do it" response is not helpful to anyone when it only regurgitates bug that might not be relevant to a particular individual. [This message was edited by ChrisC on July 19, 2008 at 10:31 PM.] | ||
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| daystar | #20 Posted : Saturday, July 19, 2008 one:26:20 PM(UTC) | ||
| Rank: Senior Fellow member Groups: Registered Was thanked: 1 fourth dimension(southward) in i post(s) | Regarding the Original Poster, I would honey to know how I can get all-encompassing work done inside and outside of my house for a few thousand dollars. | ||
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