TSP loan

[sonofnthng]

So far, you have paid $0 in tax. To make up for this, you pay tax as you repay the 10k loan. After the loan is paid, you have paid $2500 in taxes, which is exactly what you owed for the tax on the 10k equity in the house. You once again have a 10k balance in your pre-tax TSP, and 10k of post-tax equity in your house. When you retire, you will pay $2500 in tax on withdrawing that same 10k from your TSP. Total life tax bill: $5000.

Understood. I was asking on whether or not it would greatly impact my tsp balance in 25 years. The way you say we pay tax on the loan amount to pay it back, that's exactly how we pay back any loan from any bank.. with our POST-tax "net to bank" money. So, we also pay the same 5,000 in tax on a loan from ie, Chase bank.

This fact nullifies the point of your post. What I am wondering is, if I go from ~50k to ~40k in 2017-18, would it be a noticeable effect in 25 years? I understand that I'll be paying back the loan, plus interest, plus normal contributions/matching, so I'm leaning towards no.

Conversely, If I can get a personal loan from a bank at the same interest rate as the G fund, I won't have to affect my TSP. Being a first time buyer with a 730 credit score and 12 years with the USPS, do you think a bank would give me zero down financing? I will have saved enough to cover associated fees with buying, otherwise.

Thank you for reading, if you've made it this far

[sonofnthng]

OK I am sorry to have put you all through the wringer. I have done the arduous task of plugging numbers into the TSP calculator. It could cost me almost 60k. Both based on a 6% annual return, contributing 5%, and $1,500 in catch-up contributions after age 50.

Your existing account balance $40,000.00
Growth of your existing account balance $189,739.63
Your future contributions $190,215.16
Growth of your future contributions $377,653.65
Total estimated TSP account balance $797,608.44


Your existing account balance $50,000.00
Growth of your existing account balance $237,174.60
Your future contributions $190,215.16
Growth of your future contributions $377,653.65
Total estimated TSP account balance $855,043.41

[mjedlin66]

That assumes you never pay the loan back.

The only zero-down programs I am aware of are the USDA loan program and the VA loan program. I am fairly confident no conventional loan will offer you a 0 down mortgage. Depending on where you want to buy and your veteran status, you may not qualify for either.

The good news is that you do qualify for FHA loans, and they start at 3.5% down. Conventional loans can also be had for as little as 5% down. I bought both of my houses with 5% down conventional.

The bad news is that you will pay for a low down payment with a higher rate or PMI.

If you put down less than 20% on a conventional loan, then you will pay Private Mortgage Insurance until your loan is scheduled to reach 80% LTV. Extra payments do not count toward dropping the PMI.

For an FHA loan, you must pay PMI for the life of the loan. It does not expire like it does on conventional loans.

I paid roughly $60/month for PMI for each mortgage. Then after a couple of years I hit 80% LTV and the PMI dropped.

There are a lot of different loan programs for buying a house so I recommend you talk to a couple of different lenders first. Talk to your local credit union as well as an independent mortgage broker.

But if you borrow 10k from your TSP and pay it back within 10 years, then I guarantee it will not cost you 60k. My biggest takeaway here is that if you have to save up 10k, save it by making EXTRA contributions to your TSP on top of what you normally would. That way, the money will grow while you are saving it.

OR, save it in an IRA and withdraw it befote the end of the year penalty free. You will pay taxes on the earnings but no penalty.

[evilanne]

Upon further investigation, I think you guys are misinformed about that tax situation. The only thing you pay double tax on is the interest, not the amount of the loan. Do yourselves a flavor and read this

http://www.tspallocation.com/tsp-loan-g ... tsp-loans/

As far as the impact on you future TSP balance, TS Paul addresses this under opportunity cost. Your loan repayment would be equivalent to investing the loan amount in the G Fund during the period of the loan. If you normally return 6% the opportunity cost for 2% loan repayment would be 4%; 8% RoR would be a 6% opportunity cost.

With taxes, the TSP loan interest is not tax deductible as mortgage interest. Part would depend on whether or not you can itemize deductions on your tax return. A regular mortgage at a higher rate may actually result in a greater deduction that would reduce your taxable income & possibly your tax rate. If the TSP loan permits you to get a conventional loan, avoiding PMI, it may more be advantageous to use TSP on a total cost basis but I think PMI is also tax deductible. If the TSP loan is the only way you afford to buy a house that results in much higher deduction or tax advantages, it could be advantageous and more than offset the opportunity cost. The opportunity cost/impact on TSP value may or may not be offset by the appreciation in the home value during the repayment period. Owning vs renting is another opportunity cost. Bottom line is that there are many interelated factors, pros & cons, that will be different based on each individual's income, tax situation etc. There are benefits and risks for each factor, so there isn't simple solution and many unknowns.

For those that are saving to purchase your 1st home at least 5 years or more in the future, you may want to consider contributing to a Roth IRA, which allows you to withdraw up to $10K for 1st time homebuyers (contributions & earnings without tax or penalty). If less than 5 years in the future, you can always withdraw your contributions without penalty with a Roth. See http://www.rothira.com/blog/should-i-us ... uy-a-house