Has anyone ever taken a short-term loan from their Thrift Savings Plan (TSP) to fund things such as rehab costs? (For those unfamiliar, the TSP is the Federal Government 401k plan) I have done some research so I know its possible. Hoping to hear from others if you have done it: how easy was the process? Was it worth the effort in the end?
I took a general loan for $22K to buy my ex out of our primary residence several years ago. Process is simple, all online through the website and the cash hits your account linked to your LES in a day or two. Even though it's a loan, you will see the amount borrowed deducted from your TSP balance. Current rates are about 1.85 percent which is nearly free money. You will loose some compounding rate of return for the time your loan is out so factor that in along with your time horizon to retirement. You can pay it off sooner if you come into a windfall with no payoff penalty. Most finance folks will advise against borrowing from a retirement income source so just do your homework beforehand
We took out a loan on one of our 401ks. It was the easiest deal ever. Filled out the application online in 5 minutes and got the check in a few days. You must pay interest on the loan and that's the best part. Paying yourself interest instead of to the bank.
Thanks for the answers. Ultimately, I know the risks just wanted to hear from others with experience.
Yep, I did. It was crazy easy. Well, in typical gov't fashion it was a little stupid. If you wanted the money auto-deposited I think you had to get the form notarized. But if you wanted a physical check you could do it online. And if you're married, you have to get forms notarized either way because your spouse is supposed to agree to it.
I am one of those silly people who listened to the personal finance gurus who said to put all my money in a 401k (commercial equivalent of the TSP, which is a 403b). I could retire right now if I had just put the money in a taxable account and had access to it....
Anyway, it was really easy. The only downfall is that now that I want to expand my business I have to look at more conventional loans through banks and I just can't bite the bullet and actually pay somebody ELSE interest....so far I've bought three houses paying only myself (and business partner) interest. You get kinda spoiled with the TSP loan.
Oh, and it only costs $50! With a bank loan you usually have a 1% origination fee...
We've done a couple at different times. Two for home improvements and one to buy our boat. It is great, they set it up so it's paid before you even see the money and it's basically working behind the scenes, so you don't have to deal with payments, etc...
The only thing is I felt guilty using the money until it was paid off....and I think that's because it's really a reserve for "just in case" moments...But once you get your own approval, it worked out well and was extremely easy to do...
I'm paying back over time....for no particular reason other than as I earned the money to pay it off, I just reinvested it elsewhere. As I said, I've got "too much" in my TSP anyway and since earnings and interest are both being paid to myself I am in no rush to pay it back. It wouldn't make sense if I paid it back in a lump sum and then had to borrow from a banker and pay him principal and interest. I'd rather pay myself the interest.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing