How You Can Use Your TSP Funds When You’re Still Working

Federal employees who have worked their career and contributed to their personal savings are now in the accumulation phase of life. If you need to get into your TSP while working, there are a few things that you can do, but you need to understand the different types of withdrawal and how these types can affecting withdrawals made in the future.

Loan TSP-20

With this loan type, federal employees can borrow half or less of their TSP balance when not working, but no more than $50,000. There are two kinds of loans – residential loans and general purpose loans.

General Purpose Loans – These are loans that must be repaid in five years or less, but there are no required documents to show the need for such a loan.

Residential Loans – These loans must be repaid within 15 years, and documents must be provided to show the need for these types of loans, including the costs of the purchase or development of the home. These loans are also available to make renovations of a primary home.

People interested in either one of these loans will need to complete the TSP-20 TSP Loan Application form.

How Do You Repay TSP Loans

Payments with interests are placed back into the Roth or traditional parts of accounts in the same way in which the money was provided. TSP loan payments are deposited into the TSP account based on the present contribution allocation.

$50 are held back for administrative costs and is deducted from both the Roth and traditional accounts (should a person have both).  The fee is subtracted from the entire loan amount. For instance, if you borrow $1,200, the TSP will give you $1,150, which is the amount you will need to repay along with interest.

Financial Hardship TSP-76

Regardless of your age, you can request a financial hardship, but the minimum amount is $1,000. You may make as many withdrawals as you want, but requests must be made six months apart.

If you take a hardship, you cannot make any contributions to the TSP while you’re working for a minimum of six months. On top of that, there is a 10 percent early withdrawal penalty if you take the hardship younger than 60 years old. You will incur this tax along with the income tax you have to pay.

Age – TSP-75

A one-time service, age-based withdrawal can be made if you are still working for the federal government and are over 59.5 years old. The withdrawal must be a minimum of $1,000 or the entire vested account balance if the amount is less than $1,000. TSP contributions are still permitted, and you can get your match. You can also roll the TSP over into an Individual Retirement Account or do what you want with it.

The tax you are hit with depends on where the money went.