Possible VERA VISP and TSP Loan

[Rustynutt]

Been a while all!

Probability is high my organization will be offering a VERA VISP within the next few weeks, mandatory exit date Sept 30.


I'll be 56 with 29 years 6 months service. (The offer basically would be in lue of medical termination after a denied RA request, which would end up even better $ wise, but a bit sketchier exiting without a 100% guaranteed disability retirement). Managed a fully funded detail the past 18 months, but money is now all but gone. It all boils down to 6 months after more than 29 years, and yes Virginia, there are people out there that will attempt to deny an employee for so little. It's time to leave, get out of Dodge, change teams, splitsville and all that.

Except for one darn barcoded strip chart recorder, everything looks hunky dory for a clean exit.

Due to medical reasons, annual leave is about tapped out, with only a house payment worth remaining.

As I understand the issues with an outstanding TSP load at separation, the following apply;

Separating Federal Service at 55 omits paying the 10% IRS early withdraw penalty on outstanding loans or after retirement draw downs.
The TSP declares a remaining loan amount a taxable distribution, reports it to the IRS. They collect tax as earned income for the tax year.

Waiting until after retirement to make a lump sum withdraw has 20% withheld.
I'm thinking taking a TSP loan out before exiting service is a better deal than letting the government hold 20% until they decide I deserve it.

The ONLY downside I’ve seen mentioned is having an open loan at time of separation can delay future withdraws, but have not seen any estimates of how long the delay is. I'd imagine it has something to do with reporting information to the IRS and accounting.

Has anyone experience exiting service with an existing TSP loan, and have any idea of how long the process takes until TSP funds can be accessed?

Thanks,
Mike

[Rustynutt]

Kam PM'd me, thought I'd be a little more clear. I have a tendency to babble

What I was getting at is to take a TSP loan just before separation with the intent of not repaying, a small chunk of change, and just let the TSP report it as a distribution to get around them withholding the predetermined 20% tax as when withdrawn after separation in a lump (but not all) sum. Could then pay later at my adjusted tax rate next tax year. 20% is a big hit. If a loan is open at separation, they state there can be delays making further withdraws, want to know what kind of delays they are talking about time wise.
Cheers

[Rustynutt]

I've done a bit of reading in the TSP loan manual. For my situation, about all that occurs is the loan is reported as a taxable distribution to the IRS if it isn't repaid within an earning reporting cycle, about 90 days, after an employee separates. There's more there on Page 11. All in all it looks like it could take up 5 months before a participant is allowed to withdraw further funds.

[nnuut]

I've done a bit of reading in the TSP loan manual. For my situation, about all that occurs is the loan is reported as a taxable distribution to the IRS if it isn't repaid within an earning reporting cycle, about 90 days, after an employee separates. There's more there on Page 11. All in all it looks like it could take up 5 months before a participant is allowed to withdraw further funds.

For them that's JET SERVICE! airplane5.gif