How long does it take to get a loan from a thrift savings plan?

If you need extra cash to pay for an unexpected expense or a large purchase, borrowing from your thrift savings plan may be a good option. A TSP loan allows participants to tap into their accumulated retirement savings without requiring a credit check. Once you apply for a TSP loan, it can take several days to weeks to receive the funds.

If you complete an application for a TSP loan online and get approved, your loan will be disbursed within three to 13 business days. However, if you submit TSP loan paperwork via mail, it can take several weeks for the application to be processed and approved. You will receive the loan amount via check or direct deposit.

What is a TSP loan?

A TSP loan is similar to a 401(k) loan, and it allows plan participants to borrow money against their retirement savings. Since you are borrowing from your savings, it is easy to qualify for a TSP loan, but you must meet various requirements to be eligible for a loan. For example, you need to have a minimum of $1,000 of your own TSP contributions, be in “active pay” status, and not have a court order against your TSP account.

There are two types of TSP loans i.e. general purpose and residential TSP loans. A general-purpose TSP loan is similar to a personal loan, and you can use it for any purpose; it has a repayment term of up to five years. A residential TSP loan can only be used for buying or building your primary residence; it has a repayment term of up to 15 years.

How to get a TSP loan

You can apply for a TSP loan online by logging into My Account on the tsp.gov website. You can use the online application tool to complete the loan application online.

If you are married, you will be required to provide a signed consent form from your spouse. Also, if you are applying for a residential TSP loan, you will be required to provide paperwork with the address of the home you are buying or building.

If you are required to print the loan application form, ensure that you fill up all fields, and provide the additional paperwork that may be required. You can upload the complete form alongside the additional documentation to your TSP account. You can also send the TSP loan paperwork via mail or fax.

How long does it take to get a TSP loan?

Once you apply for a TSP loan, it can take several days to weeks to receive the funds, depending on how you applied for the loan. If you complete the entire loan application online, you can expect to receive the funds within 3 to 13 business days. Applications submitted by mail take longer to be processed and approved, and it can take several weeks to receive the money.

Once the TSP loan is approved, you will receive the funds as a mailed check. If you applied for a general-purpose TSP loan, a $50 processing fee will be deducted from the loan proceeds. If you applied for a residential TSP loan, a $100 processing fee will be deducted from your loan proceeds.

TSP loan eligibility requirements

If you want to borrow from your Thrift Savings Plan, you must meet the following requirements:

You must have at least $1,000 of your own contributions and associated earnings in your account.

You must be a current federal civilian employee or a member of the uniformed services. If you have left the federal service, you won’t be eligible to borrow from your TSP savings.

You must be in active pay status, meanings that you must be receiving a salary from the federal service. This is because TSP repayments are deducted from your paycheck. If you are in active pay status, but you no longer contribute to the plan, you can still borrow from your TSP account.

You must not have repaid any type of TSP loan in the previous 30 business days.

You can only have one residential TSP loan and one general-purpose loan at a time.

You must not have had a taxable distribution on a loan in the previous 12 months unless it resulted from your separation from federal civilian service or as a member of uniformed services.

You must not have a court order or judgment against your TSP account.

How much can you borrow from TSP?

The minimum amount you can borrow from a TSP plan is $1,000. The maximum amount you can borrow from the retirement plan depends on several rules. Typically, the maximum TSP loan amount is the smallest of the following:

Your own contributions and associated earnings in your TSP account you would like to borrow from, excluding any outstanding TSP loan balance.

50% of your own TSP contributions and the associated earnings, or $10,000, whichever is greater, minus any outstanding loan balance.

$50,000 minus your highest outstanding TSP loan balance during the last 12 months, if any.

Therefore, based on these rules, $50,000 is the maximum amount you can borrow from a TSP plan.

TSP loan repayment

When you borrow against your TSP savings, you must start making loan repayments to the plan. Usually, you repay the loan over time through payroll deductions, where the repayments are deducted from your paycheck. The loan payments go back to your traditional and Roth TSP balances in the same proportion as used for your loan disbursement.

If you have separated from the federal service and you have an outstanding TSP balance, you will be required to pay off any unpaid balance within 90 days. If you are unable to pay the entire TSP loan balance, IRS will consider the balance a taxable distribution, and you will owe income taxes, and a 10% early withdrawal penalty if you are below age 59 ½.