To make matters worse, if you haven’t separated from service and are under age 59 1/2, you’d owe an additional 10% early withdrawal penalty. If you have separated from service and are 55 or older, there is no early withdrawal penalty for the TSP, but you will still owe income tax.
Likewise, can I use my TSP to pay off my mortgage?
What Not to Do. Generally, it’s not a good idea to withdraw from a TSP or an IRA to pay off a mortgage. If you withdraw before you turn 59½, you may incur taxes and early-payment penalties.
Considering this, can you refinance a TSP loan?
A TSP residential loan may not be obtained to refinance or prepay an existing mortgage, renovations or repairs, for buying out a partner’s share in a current residence, or for the purchase of land only. A participant may have only one general purpose loan and one residential loan outstanding at any one time.
Do I have to pay off my TSP loan before I retire?
If you aren’t able to pay your loan down early, don’t worry: you can still retire with an outstanding TSP loan. … The TSP is required by law to report any unpaid loan balance — for both General Purpose and Residential loans — as a taxable distribution. You have a 90-day grace period to pay it off before this happens.
Do you get taxed on a TSP loan?
When you contribute to the traditional TSP, you get a tax deduction today but will have to pay taxes on that money and the growth when you take it out in retirement. However, when you take a TSP loan, you don’t owe any taxes on that money right away but you technically do pay taxes on it when you repay the loan.
Does a TSP loan affect your credit?
Will a TSP Loan Affect Your Credit? Because you’re technically borrowing your own money, taking out a thrift savings plan loan doesn’t require a credit check. … Repaying your TSP loan also won’t help or hurt your credit score because your payment history isn’t reported to any of the three major credit bureaus.
How long do you have to pay off a TSP loan?
Should I pay off my TSP loan?
If you meet the loan eligibility rules and your loan request is approved, the loan amount is removed from your TSP account. You must repay your loan with interest. Generally, loans are repaid through payroll deductions.
What happens if I don’t pay back my TSP loan?
If you leave service with an outstanding TSP loan, you must repay the loan in full, including interest. If you have not made that payment within 90 days, a “taxable distribution” of the unpaid loan amount will be declared, potentially subjecting you to significant tax penalties.
What happens if I overpay my TSP loan?
If the TSP receives a payment that repays the outstanding loan amount and overpays the loan by $10.00 or more, the overpayment will be refunded to the participant. Overpayments of less than $10 will be applied to the participant’s account and will not be refunded. … Interest accrues on the loan from the date of issuance.
What happens to my TSP when I quit?
However, if you close out your TSP before the minimum distribution age, you get hit with a lump-sum tax bill for the entire amount, plus the penalty. If you have your money in the Roth version of the TSP, all withdrawals after age 59½ are normally tax-free.
What happens when you pay off a loan?
When you pay off a loan, your account is closed in good standing. At this point, you have eliminated the risk to your credit score posed by late or missed payments. A paid-off loan can also lower your debt-to-income ratio, a key metric lenders use to make credit decisions.
What states do not tax TSP withdrawals?
While most states tax TSP distributions, these 12 don’t: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming, Illinois, Mississippi and Pennsylvania.