Reply to can tsp loans be sort of a back door contribution?

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Reply to "can tsp loans be sort of a back door contribution?"

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[quote=Anonymous][quote=Anonymous]Or, you could just direct the monthly loan payments into your own Traditional IRA without going through this Loan->IRA-> Repay Loan cycle.[/quote]

You're missing the point though.

If I contribute directly to IRA, I have to use after tax money because of my income bracket.

If I take a TSP loan to invest in the IRA, I have to to use after tax money to repay the loan.  But the difference here is that you have to repay the tsp loan with 4.25% interest, which goes back to yourself.

Let's say you take $10,000 tsp loan to immediately invest in an IRA and set it up to be repaid over 5 years @ 4.25%.  The loan will cost $1100, which is just all interest to yourself.  Minus the $50 fee, I'm walking away with $1050 more due to interest.  If I contribute $10,000 directly to an IRA over 5 years, it costs me exactly $10,000 because I'm in the bracket where there are no tax deductions.  If I go through TSP, it's basically costing me $8950 to invest $10,000 over the same 5 years.

I can't see where this is wrong.  My entire retirement savings isn't decreased. The interst is all paid to myself, and the only hit is the $50 fee.  You walk away with more than directly investing after tax money into an IRA, no?[/quote]

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