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Reply to "Should I take out a HELOC or a TSP loan to finance my $40,000 bathroom renovation?"
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[quote=Anonymous][quote=Anonymous]The tax on the TSP interest ($2K of interest per year) is not important. OP's desire to hold on to $250K in index funds to jump on an imagined "opportunity" that arises is the yellow flag in their financial planning. [/quote] I’m the PP who said pay attention to the tax. As you write, it’s $2k per year in interest. I’m in the 35% tax bracket for federal. Add 5.75% for VA state, 1.45.% for Medicare, and 0.9% for the high earner Medicare tax. So, let’s call it 43%. Due to that tax rate, it takes me $3.5k of earnings to pay the $2k in after tax interest for a year. Let’s say my taxes are identical in retirement. That $2k in interest (that’s now a 401k contribution) is only $1140 after I pay income taxes. So I’ve lost almost $2400 per year to taxes on a $50k loan. That’s about 4.8% paid to the government, on top of the missed returns from the money being missing from the account. [/quote]
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