To Loan or not to loan

General TSP Discussion.

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Timber82
Posts: 166
Joined: Mon Feb 27, 2017 2:39 pm

To Loan or not to loan

Post by Timber82 »

So I know the story and I have preached it many times too to not touch your retirement money unless you absolutely must do it. But I think I may have a situation that gives merit to the idea. I will share some numbers and my logic. Please correct me if my logic is flawed I.e. I misunderstand a rule about TSP loans or something.

So my situation - I have a USAA credit card and back in July of last year I was offered a "Promotional APR of 1.9% interest on all purchases and convenience check transactions until the end of the month." So I paid my card balance to $0 and did a convenience check for around 15K. now you might be banging your keyboard thinking you stupid moron! But I took this money knowing I could make more than 1.9% so I basically margined my credit card if you want to think of it like that. Meanwhile the investment has been humming along and I have just paid the minimum payment back.

Slowly over the year as I bought in and left it alone in my personal trading profile I have amassed around 2.5-3K in profit or about 16%. As my year period is coming due soon It will be time to pay it back down before the normal interest rate (9.9%) kicks in. This is where my dilemma lies. Due to the way I scaled into my investments If I wait until October then I would be at the Long term capital gains cutoff, if I take it out now to pay it back down I would lose some of my profit to Short term capital gains.

So my thought, take the money out of the TSP to pay the debt down to 0 and in October withdraw the stock purchases at the long term capital gains amount and pay my loan off and keep whatever profit. For this to work I am assuming that I have read correctly that TSP loans do not count as taxable income so long as it is paid back.

So thoughts?

ajareds92
Posts: 35
Joined: Tue Aug 04, 2015 11:16 pm

Re: To Loan or not to loan

Post by ajareds92 »

Maybe do the same thing again? Can your significant other take out the same credit card? Is there another card that has the same offer? But maybe you run into the balance transfer fees...
Allocation = 100% S (11/17/2017)
Daily Seasonal Strategy since 23 Aug 17
Following Strategy #16292
Current 12 Month PIP 27.38 %
Maxing 100% Roth TSP

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Asiana
Posts: 15
Joined: Mon Dec 12, 2016 7:28 pm

Re: To Loan or not to loan

Post by Asiana »

Your first mistake was taking the $15k on credit. Don't make a TSP loan your second mistake. Pay off the credit card as soon as possible even if it means paying the 9.9%.

Tiffany
Posts: 18
Joined: Mon Dec 19, 2016 9:18 am

Re: To Loan or not to loan

Post by Tiffany »

I agree with Asiana. Don't dig yourself into a deeper hole. You never know what might happen next.

Dillon
Posts: 10
Joined: Thu Dec 29, 2016 12:46 am

Re: To Loan or not to loan

Post by Dillon »

Don't do a TSP loan for this. Not a good idea.

TomCollins
Posts: 10
Joined: Fri Mar 10, 2017 6:08 pm

Re: To Loan or not to loan

Post by TomCollins »

Take it out now and cut your losses. A TSP loan is not the answer.

Scorpio70
Posts: 432
Joined: Thu Dec 24, 2015 11:49 am

Re: To Loan or not to loan

Post by Scorpio70 »

Stop digging. Pay it back, and the tax bite is part of part of the calculus. I am not a fan of debt.

Timber82
Posts: 166
Joined: Mon Feb 27, 2017 2:39 pm

Re: To Loan or not to loan (a LT vs. ST cap gains dilemma)

Post by Timber82 »

Ajared, this is not a introductory offer it is a sort of "thanks" for being a member.

I don't know if I did a poor job explaining my situation but I am not "in a hole" nor am I suffering any losses, I don't feel I made a mistake I knew the risks and was comfortable making them, in this instance the risk paid off. I am just trying to protect my profit from having more tax taken out than necessary. In my investing account right now I have the 15K + 2.5-3K so I have enough to pay the card back and then some. I just am trying to get around paying more in taxes.

So if I hold off clearing my investing account of the 15K until OCT I would be withdrawing under Long term capital gains rather than Short term, to my understanding that's a difference of 10%

CODE4
Posts: 10
Joined: Sun Jan 29, 2017 5:31 pm

Re: To Loan or not to loan

Post by CODE4 »

Timber - Hole or no hole, I agree you should either pay the debt over time or take the profits now. Preferably the latter.

catfish
Posts: 5
Joined: Sat Apr 01, 2017 1:22 pm

Re: To Loan or not to loan

Post by catfish »

What's your TSP account making? If you're making 16% elsewhere, why not take.....let's say $20k from TSP and invest it again?

ajareds92
Posts: 35
Joined: Tue Aug 04, 2015 11:16 pm

Re: To Loan or not to loan

Post by ajareds92 »

Yea I think people didnt understand what you said or just think its way to risky for them. Its like how some people would rather invest more in the stock market then pay off their house faster since they can make more in the stock market than the apr on their mortgage. I agree that you could do a TSP loan but i dont know if it would be worth the hassle to save a couple hundred bucks in capital gains.

So say you made 3000 in capital gains from your investment. By playing this game of holding onto the money by taking out a tsp loan you are going from a 25% tax to a 15% tax (depending on your income). So you will be going from 750 in taxes to 450 in taxes. To me the hassle isnt worth saving 300 in taxes.
Allocation = 100% S (11/17/2017)
Daily Seasonal Strategy since 23 Aug 17
Following Strategy #16292
Current 12 Month PIP 27.38 %
Maxing 100% Roth TSP

Timber82
Posts: 166
Joined: Mon Feb 27, 2017 2:39 pm

Re: To Loan or not to loan

Post by Timber82 »

ajareds92 wrote: To me the hassle isnt worth saving 300 in taxes.


Thanks for putting it that way, I guess that depends on how much work we are actually talking about since I have never done a TSP loan before.

to my understanding it just applying, getting the money transferred, then getting a payment plan set up, make larger payments back by sending in a check or whatever).

Then when I am ready to withdraw I could liquidate the 15K in my portfolio, wait for the money to get to my account then send a check (which I am doing this either way if I liquidated to pay down the CC too).

I may be way oversimplifying it so I guess its a matter of how big of a stressor taking out the loan would be in my mind I am assuming this would take about an hour worth of my time cumulative to set up everything. Not that I need the $300 but seems pointless to give it up if I don't have to :)

thanks for the input!

Timber82
Posts: 166
Joined: Mon Feb 27, 2017 2:39 pm

Re: To Loan or not to loan

Post by Timber82 »

catfish wrote:What's your TSP account making? If you're making 16% elsewhere, why not take.....let's say $20k from TSP and invest it again?


Was following the seasonal mix but I F'ed up in February and went to F when I was supposed to go S, missed out on about 2% right now my PIP is at 9.5%

edit: guess I missed out on a pun opportunity there to say I "F'd up"

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evilanne
Posts: 2067
Joined: Thu May 14, 2015 6:52 pm

Re: To Loan or not to loan

Post by evilanne »

Timber82...there is also a $50, non refundable cost to the TSP loan no matter how much you borrow. In general I would recommend against borrowing from TSP...it might be worthwhile looking at what the interest would be over short period of time or potentially selling some other investment in a long term position (gain or loss) to pay it off.

mindofmush
Posts: 353
Joined: Mon Jul 02, 2012 1:38 pm

Re: To Loan or not to loan

Post by mindofmush »

Timber82,

It would cost "3-5% balance transfer fee" to transfer to another credit card (unless you can find one with no transfer fee). That would be $450 to $750 in transfer fees compared to the $50 admin fee the TSP Loan charges.

The only downside to the TSP loan I see is that you won't be able to do it again for 60 days after you pay off this one.

It's a different kind of investing but definitely doable.
mo meng, mo ching (which loosely means: no money, no life)

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