Tsp/401k loan For home improvement?

[simpsongal]

In my quest to find a Low interest loan I stumbled on the prospect of a tsp loan. This seemed crazy to me but it’s at the g fund rate (like 3.8%). And there’s no penalty like there is for early withdrawal. I know we’d lose the compounding interest of the borrowed money for a while… and no mortgage interest deduction like a heloc. But we may not itemize this year anyway. Heloc rates are terrible, north of 7%. We can wait and save a bit but I don’t want to wait 5 years…

Would you consider this? Esp if you think you’re almost over-saving for retirement?

[flygirl]

I’m not a fan of using your retirement savings for loans. Could you save some more and then borrow less at the higher Home loan rates?

I thought this was a decent article as well regarding some of the cons: federalnewsnetwork.com/commentary/2017/01/tsp-loans-double-taxation/

[beachdweller]

Maybe not the most MM, but we borrowed from a 401(k) for a home improvement.  It was easy, you pay yourself the interest and we were/are overfunded for retirement.  Did it about 9 months ago and no regrets.  Paying it off in 2 years (although our plan allows for a 5 year repayment).  

[sometimesrunner]

I would consider it. How long would you take to repay the loan? If I'm remembering correctly, you guys have more saved for retirement than my H and I do, and we're "on track" for retirement.

[sadlebred]

I think it would depend how your retirement savings is and do a full assessment of it. If you are really ahead, it's not a bad idea. If you are behind, it's a really bad idea.

[simpsongal]

To provide some more detail....I have 15 yrs of service, so a pretty decent pension Poof.

We'd definitely have to talk this out, I wouldn't want to borrow more than we could repay over ~3-4 years. Maybe less. We're still paying down our HELOC, but hope to have that done by the end of the year.

To me it's all a cash/flow timing issue. Helpful to hear if this seems nuts b/c I didn't even know this was an option (I think Google pushed an article on the idea).

Eta - I didn’t realize the limit is $50k, so this would be a pretty modest withdrawal

[mccallister84]

Is this a loan that would have to be repaid immediately if you lost your job?

[simpsongal]

May 30, 2023 14:59:30 GMT -5 mccallister84 said:

Is this a loan that would have to be repaid immediately if you lost your job?

it seems unfowvorablu to pay it back after separating from fed service. Looks like that could trigger tax penalties. But I’m a long tenured fed and a manager, I don’t foresee a situation this would be a problem. We could also liquidate stock if something really unexpected happen and had to pay it back.

[lessel]

Eh, I've borrowed from my TSP for house stuff. It's not the smartest thing, but between somewhat equally sucky options, it's kind of the least worst.

I would prioritize paying off the HELOC first before you pursued it.

ETA: Echo sadlebred that you want to be sure you are actually good/ahead with retirement before doing so.

[dragon's breath]

May 30, 2023 14:59:30 GMT -5 mccallister84 said:

Is this a loan that would have to be repaid immediately if you lost your job?

No.  TSP changed recently and people can now continue to make loan payments even if they quit or retire.

[dragon's breath]

May 30, 2023 9:05:58 GMT -5 simpsongal said:

 Esp if you think you’re almost over-saving for retirement?

I've definitely over-saved for retirement, unless I can get a VERA, and then I'd do just fine, I'd just need to stay somewhat frugal and won't have the big travel budget I'd have if I stayed to MRA.

I've done a TSP loan, twice, for land purchase.  No regrets, and I paid both loans back early.

I've got over 12 years to go and am only contributing 6% for now (all Roth), but I also max a backdoor Roth.  I don't know if I'll ever try to max it out, because I really don't need to.  Once I reach some other financial goals I'll probably at least bump my contributions back up to 10%.

So, I'm not anti-TSP-loan.  For home improvement, it would depend on if I though it was worth it, and what other loans are running (7% is still not bad, just much higher than we've been seeing for the last several years).

Other than loss of time in the market, and obvious possible issues of a lower retirement funds, the other downfall is that you will be double-taxed on any interest you pay for the TSP loan.  You will not be double taxed on the principal, that is a myth easily disproven, but you will on the interest.