Your Thrift Savings Plan Is Not a Christmas Club Account

By FINRA Investor Education Foundation Staff

Need some extra spending money for the holidays? You may want to consider a Christmas Club account. Remember those? Although Christmas Club accounts aren’t often talked about these days, their purpose is wise: keep the saver out of debt at the holidays. By saving systematically throughout the year, that money can be used to keep Santa in the green.

It may have crossed your mind to supplement your holiday cash by tapping into your Thrift Savings Plan (TSP) or even your spouse’s 401(k). Generally speaking, as long as you are employed by the federal government or a member of the uniformed services, the law permits borrowing of up to half the value or up to a maximum of $50,000 (whichever is smaller) from a TSP account.

Think again. There are costs and potential pitfalls to retirement readiness if you borrow money from your TSP, or take what is known as an in-service withdrawal.

Just because the law permits borrowing from the TSP doesn’t mean it’s a good idea. Here’s why.

  • A $50 loan fee is charged to administer any loan you take. If you arrange to borrow $1,000 (the minimum loan amount in the TSP), you’ll receive only $950 in cash.
  • The loan must be repaid with interest (at the G Fund rate at the time your loan application was processed; currently 2%), and usually within five years.
  • If it isn’t repaid in full within the required time period, the unpaid balance and accrued interest are subject to taxes and a potential early-withdrawal penalty.
  • If you leave federal service with an outstanding TSP loan balance, the remaining loan amount must be repaid within 90 days.

Perhaps the most detrimental impact: you don’t earn any return on the money you borrow until the amount has been paid back. This makes it harder to meet your retirement savings goal.

And don’t even think about using an in-service withdrawal to spend on holiday cheer, or for most any other purpose. Such a withdrawal permanently reduces your retirement nest egg. You incur immediate tax liabilities and possibly a 10 percent penalty. The TSP offers a comparison chart to help you see how a loan or withdrawal would affect your account.   

Instead of raiding your retirement funds, consider opening a savings account at your financial institution and making regular deposits to prepare for your holiday needs. It may be a little late for this season, but the 2016 holidays are right around the corner. Set a goal to save for future needs.

Remember, your TSP is not a Christmas Club Account. Retirement savings are for retirement!

Need some advice about tracking your spending? can help.


Tip of the Day

  • Written by Guest Blogger | May 2, 2014

    33% of Americans spend more than they earn. The first step to eliminating #debt is to stop borrowing & make a budget.

Saver Stories View all »

Airman Succeeds Through Dedication to Building Wealth Not Debt

Written by Super User | October 13, 2011

I came into the Air Force at 23 years old in 1993 with about 12 outstanding bills (hospital bills, car loan, car insurance, school loans, credit cards, etc.). You name it, I had the bill. Thanks to the Family Support Center, Dave Ramsey's Financial Peace University, and many other sources, I now have no outstanding bills.


Regular Savings is the Key to Success

Written by Super User | November 26, 2010

My name is Chris Strong. I joined the Air Force on 25 March, 1985. On that day, my financial life changed forever. I was introduced to saving bonds in Basic Training. Savings bonds were the big thing back then just like the Thrift Savings Plan is today. A Colonel gave us a briefing. I cannot remember his name but I can remember the 100 savings bonds he had posted to a piece of card board. He gave us a speech on the importance of saving money and how it can change your life. He inspired me to save.


Savers Pledge Leads to Savings Success

Written by Super User | October 13, 2011

My name is Rob and I am a Staff Sergeant in the Marine Corps Reserve. My financial success is a huge result of the Military Saves Campaign.

My journey began five years ago after marrying my wife, Lisa. We entered our marriage with no savings plan in sight, carrying debt and living in a tiny apartment. After seeing an advertisement for Military Saves, we decided to grab the reigns of our finances and implement a positive financial plan.