TSP Loan vs. Temporarily Reduce Contributions
Moderator: Aitrus
TSP Loan vs. Temporarily Reduce Contributions
Good Morning! I apologize now because I do not have specifics. I just had a coworker approach me and asked if I thought they would be better off in the long-term if they took a loan out on their TSP or just reduced their contributions to the TSP temporarily. I do not know what the money is for, but they did say it was "urgent". My advice to them was to find another way to get the money as I feel taking from a retirement account should be a last resort, but according to them this is their last resort. So I guess then I am trying to find out generically and from a loss perspective, which option would be better("less loss"). If there is even a way to generically answer that. Thank you.
Re: TSP Loan vs. Temporarily Reduce Contributions
Don't reduce contributions so much that you miss the match.
Re: TSP Loan vs. Temporarily Reduce Contributions
I agree with not missing the match. In my oppinin for what it is worth, depends on how much they need and how much they are contributing. If they need 10K and only contribute 1K a month then the loan is the only option. You stated they needed the money now so i am guessing they need to do the loan. But way to much guessing to give a true cut and dry answer.
Re: TSP Loan vs. Temporarily Reduce Contributions
Reduced contributions as long as mentioned above it doesn't go below 5% for the match. The reason being is they can reasonably have a better return on the funds that are invested. If they took the loan they would be paying it back at what I believe is the G Fund rate.
Better to leave the money invested earning more than the G Fund.
of course, if you think the market is going to meltdown you would be in the G Fund anyways and your return would be no different.
Better to leave the money invested earning more than the G Fund.
of course, if you think the market is going to meltdown you would be in the G Fund anyways and your return would be no different.
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Re: TSP Loan vs. Temporarily Reduce Contributions
Here’s my rule of thumb on borrowing from the TSP…
If you ever make the decision to keep any part of your TSP balance in the G fund (because you are getting close to retirement age or you just want to protect a portion from “price fluctuations”, etc) then that portion of your balance is fair game for loans.
I currently have over $600k in my TSP and have about 6 years until retirement. I have $30,000 “tucked away” in the G fund that I do not touch – the rest I have in the S and C funds right now.
If I ever need extra $$ for anything, I would have no issue with taking out a TSP loan (equal to that amount that is in the G fund) and paying myself back – that money would be paid back at the G fund rate and thus there is no “opportunity cost” associated with it (that same $30,000 would earn the G fund rate if it just sat in my account.)
I would rather take a loan from my TSP and pay back MYSELF rather than pay interest on any other type of loan I may need (think about big ticket items that you may need a loan for – a new roof, new automobile, college, etc.)
I would personally avoid decreasing contributions if for no other reason than the tax break you get in today’s dollars…..I just did my taxes and believe me, if there is any way I can shelter an extra $ from Uncle Sam, I’m going to do it…..that’s why I contribute the max to TSP each pay period – decreasing that amount would mean more taxes…
If you ever make the decision to keep any part of your TSP balance in the G fund (because you are getting close to retirement age or you just want to protect a portion from “price fluctuations”, etc) then that portion of your balance is fair game for loans.
I currently have over $600k in my TSP and have about 6 years until retirement. I have $30,000 “tucked away” in the G fund that I do not touch – the rest I have in the S and C funds right now.
If I ever need extra $$ for anything, I would have no issue with taking out a TSP loan (equal to that amount that is in the G fund) and paying myself back – that money would be paid back at the G fund rate and thus there is no “opportunity cost” associated with it (that same $30,000 would earn the G fund rate if it just sat in my account.)
I would rather take a loan from my TSP and pay back MYSELF rather than pay interest on any other type of loan I may need (think about big ticket items that you may need a loan for – a new roof, new automobile, college, etc.)
I would personally avoid decreasing contributions if for no other reason than the tax break you get in today’s dollars…..I just did my taxes and believe me, if there is any way I can shelter an extra $ from Uncle Sam, I’m going to do it…..that’s why I contribute the max to TSP each pay period – decreasing that amount would mean more taxes…
Fund Prices2024-03-28
Fund | Price | Day | YTD |
G | $18.15 | 0.05% | 1.05% |
F | $19.08 | -0.06% | -0.74% |
C | $82.21 | 0.11% | 10.55% |
S | $82.43 | 0.30% | 6.92% |
I | $42.57 | -0.24% | 5.95% |
L2065 | $16.38 | 0.02% | 8.37% |
L2060 | $16.39 | 0.02% | 8.38% |
L2055 | $16.39 | 0.02% | 8.38% |
L2050 | $32.73 | 0.01% | 6.95% |
L2045 | $14.91 | 0.02% | 6.58% |
L2040 | $54.38 | 0.02% | 6.22% |
L2035 | $14.34 | 0.02% | 5.79% |
L2030 | $47.67 | 0.02% | 5.38% |
L2025 | $13.15 | 0.03% | 3.43% |
Linc | $25.61 | 0.03% | 2.82% |