Max out TSP contributions or pay off loan early?

[Anonymous]

I took a 5 year TSP loan last year to pay for a large home repair. Then with Doge and everything I felt like maybe I should pay it off early, and hurled a couple extra chunks of money at it, and it’s now down from 29000 to 17000 a few months later. I would like it to be gone completely, but now it’s looking unlikely that I will lose my job, and I’m wondering if I would be better served by increasing my pre-tax contribution to the max. How can I figure out which way is better, assuming my job is relatively secure? I hate any sort of debt or loans, even this one.

[Anonymous]

I woudl pay it off early, like you said, because of DOGE and also the uncertainty in our local economy. In fact, I'm doing the same with our family's mortgage for the same reason.

[Anonymous]

OP, do you have a healthy emergency fund with at 3-6 months+ living expenses? And then after that a fund for home/vehicle/life happens cash? I’d probably prioritize those, and then work on the TSP loan or upping tsp contribution.

But assuming that have that, strictly by the numbers if your household’s income is secure, I’d up pre tax contributions.

You’re foregoing the benefit of a 3% return on your tSP (assumed 6-7% stock market returns- 4% interest paid to yourself ) vs the percentage of your marginal tax bracket + the 6-7% expected stock market returns (short term of course no guarantee)

But of course, only you know how much value to place on alleviating the mental burden of having a loan.

[Anonymous]

I always think there is a way to meet in the middle. What is the term of the loan (when will it be paid off)? Can you pay it off in half the time? This way, you are not dumping all your money into repayment, but are still accelerating the payoff.

[Anonymous]

You’re paying interest on the loan and you’re losing out on market appreciation. Unless you have higher interest rate debt you should pay it off asap

[Anonymous]

OP here. One thing about increasing pre tax contributions is the tax advantage. If I put in another 10k pretax that is another 2-3k saved on taxes, right?

[Anonymous]

Anonymous wrote:You’re paying interest on the loan and you’re losing out on market appreciation. Unless you have higher interest rate debt you should pay it off asap

But I would gain that same market appreciation by increasing my pre-tax contributions by the same amount that I am currently setting aside for the early repayment chunks.

[Anonymous]

Anonymous wrote:You’re paying interest on the loan and you’re losing out on market appreciation. Unless you have higher interest rate debt you should pay it off asap

And I am paying the interest on the loan to myself. It’s a TSP loan.

[Anonymous]

So, what did you decide OP?

[Anonymous]

Additional contributions and additional loan payments seem completely fungible. An extra dollar of loan payments should have the exact same return as an extra dollar of contributions, assuming you are receiving the full employer match. As others have said, if repaying the loan would be difficult in the unlikely scenarios that you lose your job, then that would be a reason to prioritize loan repayments.