TSP Center

Hello TSPcenter. First timer here. I'm looking for advice on my repayment. I'm currently re-paying $173.36 a month at 1.65%, and contributing $227 deferred every month. Should I re-amortize my payment to the full combined $400 i give every month or continue the split contribution/repayment setup I currently have. Thanks in advance for any advice.

First, always contribute to max out the government's contribution. For civs this is 5%.

After that it is your choice which is more important - waiting to repay it so most of your $400 is tax free or repaying it quickly in case you need to take another loan to buy a house or something like that.

Searight is correct in making sure you get your 5% free money.

After that...I've always been a "try to get debt free" kind of guy.

Something important to remember about taking loans from your TSP account. If you are under 59-1/2 years old, and your government employment is terminated (i.e., quit your job, RIF/Layoff, etc) prior to your paying back the loan, then you pay a 10% penalty on the remaining loan amount to the Federal Government when you file your Federal income taxes. In addition, depending on the state in which you reside, you may have to pay a penalty (probably, a few percent) on the remaining loan amount to the State Government when you file your State income taxes. Also, it tends to happen when you can least afford it - you may be unemployed. This unexpectedly happened to me about 10 years ago.

Thanks for the responses, but I wish I could say I got that amazing free money but I am active duty military. Does this change any of your responses? Thanks again. Kinda seems I should just pay it off as quickly as possible, even with the low rate.

In addition: last I knew, the loan comes due, immediately. Can you get a new non-TSP loan if you are unemployed?

Pretty sure loan balances are due within 30 days of leaving the government to avoid the 10% penalty (if below 59.5).

I feel obliged to comment on these TSP Loans. I have twice in the past taken one and then repaid it. There are pros and cons and ramifications that have been discussed on this forum from time to time.

The biggest negative in my opinion though is that when you are paying back the loan you are paying it back with after tax dollars! It is not like your "Contributions" that are made with pre-tax dollars.

That appears to me like you are paying tax on those loan dollars twice. Once while you are repaying the loan and again whenever you withdraw the money from TSP. Losing the benefit of saving tax free dollars and letting them compound for you over time before you are taxed on them IMHO turns TSP (at least for those dollars) into worse than just a standard savings account.

Mike