Borrowing from TSP for down payment?

[Anonymous]

Anonymous wrote:
No particular dog in this fight, and I don't count myself as particularly savvy financially, but to me the big question is how much money is in the TSP. If you've been erring on the side of slogging money into the TSP and feel that borrowing from it won't hurt your retirement goals, why not give yourself a loan and pay yourself the interest. However, if you have only saved very small amounts in the TSP, and do not have cash savings for the downpayment either, then you might be looking at a purchase you cannot yet afford. I would start gaming out in a napkin what buying, and not buying, will mean for you.

This. I replied on page 1 that DH and I borrowed small amounts from our TSPs. I put lots of money into my TSP for years before I had a kid. DH made some savvy choices in his investments. Borrowing from TSP (and paying ourselves back with interest) was a better option than taking a larger loan. We're mid-30s FWIW.

[Anonymous]

We did this to finance an addition. It was a super good move given how low the rate was and we put the money right back into our home, the value of which jumped by 4-5 times what we borrowed. **HOWEVER** then DH left the gov't earlier than planned. Even though his new salary was 3 times his old one, it was still a dance to come up with the entire remaining loan in 90 days without touching savings etc. If you don't pay it, you pay up to 50 percent tax depending on your bracket. Ouch.

[Anonymous]

Anonymous wrote:We did this to finance an addition. It was a super good move given how low the rate was and we put the money right back into our home, the value of which jumped by 4-5 times what we borrowed. **HOWEVER** then DH left the gov't earlier than planned. Even though his new salary was 3 times his old one, it was still a dance to come up with the entire remaining loan in 90 days without touching savings etc. If you don't pay it, you pay up to 50 percent tax depending on your bracket. Ouch.

That "low rate" you were paying to yourself. The real rate you paid was how much the money would have earned if it was in TSP rather than out on loan.

[Anonymous]

The money is double-taxed.

You put the money in pretax, but you repay the TSP loan with after-tax money (tax 1) then you pay tax on withdrawals when you retire (tax 2).

That might not be enough of a deterrent, but it’s a consideration.

[Anonymous]

Anonymous wrote:The money is double-taxed.

You put the money in pretax, but you repay the TSP loan with after-tax money (tax 1) then you pay tax on withdrawals when you retire (tax 2).

That might not be enough of a deterrent, but it’s a consideration.

It's not double taxed. Take 10K out with a TSP loan... put 10K+interest back in. that 10K is pre-tax. That interest is post-tax. What you do pay taxes on is the interest rate you're paying yourself.

[Anonymous]

Anonymous wrote:The money is double-taxed.

You put the money in pretax, but you repay the TSP loan with after-tax money (tax 1) then you pay tax on withdrawals when you retire (tax 2).

That might not be enough of a deterrent, but it’s a consideration.

This logic has never made any sense to me, since I'd be paying off any loan with after-tax money. I mean, it would be great to be able to do something without taking out a loan, but if I need a loan, I don't see tax status as being a reason not to take out a TSP loan.

[Anonymous]

Anonymous wrote:

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Anonymous wrote:Any reputable financial adviser would tell you this is a very bad idea. You need to pretend that money doesn’t exist and don’t touch it.

right....as opposed to missing out on the opportunity to own a home and create equity that often surpasses what you would earn if you leave that money in your account.

That's what ALL the realtors and finance people used to say... see how that turned out.

You seem to want your cake and to eat it too! You can have a house and no TSP or you can have your TSP and no house (at least not right now). You want both. The mindset of wanting everything without waiting is what gets people in trouble.

^^^^ you have no idea how life works, or how finances work^^^^ But you go right ahead and stay on the side-lines and NOT buy a home because you're too chicken to take advantage of a perfectly safe tool that is at your disposal, that HAS YOUR OWN MONEY IN IT! It's a mind-set. Clearly you are in the "afraid to live life" mind-set.

I am guessing you are mid-30s? Not old enough to experience 2008 housing bubble?

-np

Nope! I'm 52 which is why I know what I'm talking about. I've been around long enough to see/experience the recession in the 70's, 80's, 90's and again in 2008. it's this experience that has shown me that the market always bounces back, and then some. I have bought and sold 5 different homes throughout my adult life. By no means does that make me an expert, but I have been around the block enough times to see how the chips usually end up landing.

PP do you think Midwest market will come back eventually? We bought a house in Midwest right before the crash, it has been 10 years and still can't even break even . What do you say?