Thread: Using TSP to Purchase a home

Originally Posted by BoneZ11

By my calculations, I should have $150K in my TSP when I retire in 2010. I already have an IRA and a few CD's. Plus I will have my monthly retirement check.

Instead of rolling over my TSP into the existing IRA, I was think of removing the entire amount and purchasing a new home.

I was told that TSP withdrawals for education and property were not taxed. Anyone have information on this? I really can't see making monthly house payments, when I have the money sitting in an account. Kinda defeats the purpose of drawing interest, if your paying it out also...

Just wondering...

All distributions will be taxed.

As far as paying interest vs making gains...

If for example, you are paying 6.5% interest on a mortgage, but making 8% or more from investments i.e., TSP, the numbers would indicate that using higher income investments to pay off your mortgage is not the best use of your resources. That is, unless your property will appreciate faster than other investments.

Good luck, and good investing!

Thats a good general financial rule SkyPilot.

If your investments accrue at higher interest rates than your debt, it is "smarter" to invest the money instead of paying down lower interest debt.

Originally Posted by BoneZ11

I was told that TSP withdrawals for education and property were not taxed.

That does not sound right to me. I know that if you take out money in terms of a loan you are not taxed. Otherwise, Uncle Sam is going to want his slice.

Originally Posted by FundSurfer

That does not sound right to me. I know that if you take out money in terms of a loan you are not taxed. Otherwise, Uncle Sam is going to want his slice.

Isn't there also a 10% penalty on withdrawals if you're not 59-1/2 yo?

Don't forget that you may get a tax deduction for your home mortgage interest, which makes it even more attractive to leave your $150k invested.

Originally Posted by Greg

Isn't there also a 10% penalty on withdrawals if you're not 59-1/2 yo?

No penalty on loans, unless you seperate from service before fully repaid.

Then, the unpaid portion is considered a withdrawal and subject to penalties and taxes that may apply.

And last but not least, if you take a taxable lump sum withdrawal in the amount of $150,000, it will kick you into the high, high tax bracket.....bad idea all the way around!

Originally Posted by SkyPilot

paying interest vs making gains...

...unless your property will appreciate faster than other investments.

Even with rapid appreciation, it would be better to leave the money invested. Take out a $150000 mortgage, pay the 6.5% interest then write it off. Keep the $150K in TSP (or roll it over into something else) and continue making money tax-free. Your property will still appreciate just as much if it is mortgaged as it would if you paid for it, and you still get to keep all the appreciation when you sell.

6.5% interest that is tax-deductible is a small price to pay for getting to keep your money earning interest AND getting the appreciation on the home. Plus you get to either live in the home (saving you rent) or rent it out for additional income while you "own" it. It's a WIN-WIN-WIN situation.

Bonez,

I'm in a similar situation being near military retirement with a guaranteed monthly income and I'm also looking into purchasing a home.

Could it be that you're thinking of a ROTH IRA instead of TSP regarding withdrawal of money for education/housing?

Congrats on a successful military career and upcoming retirement.

Happy Birthday! and Many More!