By FINRA Investor Education Foundation

Need some extra spending money for the holidays? It may have crossed your mind to tap into your Thrift Savings Plan (TSP).

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.

Generally speaking, as long as you are employed by the federal government or while you are 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.

Before you borrow from your retirement savings to spread holiday cheer, carefully consider the following:

  • A 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), 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 most detrimental, 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 play Santa. It permanently reduces your retirement nest egg and 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, 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 2014 holidays are right around the corner! Set a goal to save for future needs.

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

Need some advice about tracking your spending? can help!

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