Thrift Savings Plan–Loans, Withdrawals, and Refunds–Part 1

Nov 22, 2017


So far in this series, we have covered the basics of the Thrift Saving Plan, employee and agency contributions, and the differences between Traditional and Roth TSP accounts. The next couple of posts will look at loans, withdrawals, and refunds in your TSP account, with this post covering loans.

Loans, Withdrawals, and Refunds

Once you leave federal service, you can take money out at any time. The IRS may impose an early withdrawal penalty tax on the disbursement depending on your employment status and how you receive the funds. There are three ways to get money out of your TSP:

  • Loans
  • In-service withdrawal—withdrawal while still employed by the federal government
  • Post-separation withdrawal—withdrawal after separation from the federal government


Loans are only available to participants who are actively employed by the federal government, in pay status and have contributed their own money. When you take a loan, you are borrowing your own contributions and earnings on those contributions. TSP also charges a processing fee for each loan, which is deducted from the amount of the loan you receive.

When you borrow from your account, you miss earnings that may have accrued on the money you borrowed. Also, if you have an outstanding loan when you leave federal service, you must pay it back within 90 days or the outstanding balance will be treated as taxable income.

There are two types of loans—general purpose and loans to purchase or build a primary residence.

General-purpose must be repaid within 5 years and primary residence loan within 15 years. You may only have one of each type of loan outstanding at any time. The amount is limited to your own contributions and earnings on those and you can’t borrow less than $1,000 or more than $50,000. You must also wait 60 days from the time you pay off one until you’re eligible to request another loan of the same type.


Repayment is made through payroll deduction. If your agency doesn’t deduct your loan payment from your pay, you must submit payment directly to TSP because you are responsible for your own payments.

Consequences of Repayment Failure

If you fail to repay your loan according to your Loan Agreement, TSP will report it as a taxable distribution to the IRS. You will owe income taxes on the taxable amount of the outstanding balance and possibly and have an early withdrawal penalty tax as well. However, you won’t owe income tax on any part of your outstanding loan amount that consists of tax-exempt or Roth contributions. You will owe taxes on the earnings on any tax-exempt contributions that were part of your Traditional balance.

If you default on a TSP loan, you will owe taxes, for that year, on the taxable amount you did not repay, including any qualified Roth earnings. Paying taxes on qualified earnings means you must pay taxes today on an amount you would otherwise be entitled to receive tax-free at retirement.

The following apply to Roth earnings:

  • If the taxable distribution is declared because you separate from service, any qualified Roth earnings won’t be subject to tax. However, Roth earnings not qualified will be.
  • If the taxable distribution is declared for another reason, your Roth earnings will be taxed, even if they were already qualified (or eligible to be paid out tax-free).
  • Note: If you have 2 TSP accounts, you must close any loan in the account you are moving before the accounts can be combined.

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