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Dave, Bookkeeper
Category: Tax
Satisfied Customers: 697
Experience:  Four years doing books, taxes, and accounting
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My quetion is due to some huge family emergencies I have acquired

Customer Question

My quetion is due to some huge family emergencies I have acquired over $6000.00 worth of credit card debt and I am thinking about borrowing this money from my TSP Plan. I work for the Government the current interest rate on the loan would be 2.5%. I guess my question is I am 47 years old, and I know there is a 10% Tax Penalty for those under 59 1/2. I plan on working for the gov't another 12 years so I would most likely repay the loan hopefully in the next few years. I really would appreciate some help with these. I really want to get my credit cards paid off. How much would this loan really costs me with the tax consequences and all. Again, I hate to do this but at this point I don't see anyother way to get my Debt under control.
Submitted: 8 years ago.
Category: Tax
Expert:  Dave replied 8 years ago.
Good morningCustomerand welcome to Just Answer!

If you are just taking a loan from your Thrift Savings Plan account then you will not be assessed a 10% early withdrawal penalty unless your loan becomes classified as a taxable distribution. The loan will become a taxable distribution if you do not pay back the amount of the loan. Therefore, as long as you pay back the loan and make your payments on time you should not incur a taxable distribution and you will not be taxed, nor penalized, on your TSP loan amount. Here is a link which I am going to provide you with some good information. Read page 4 for information on how the loan will affect your TSP and page 12 for more information regarding taxable distributions:

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