Taking money out early

Let's say a guy just turned 40 and has worked for gov/paid into tsp since he was 22 and now he is having mid-life crisis. Can he take some/all of his money out of TSP to buy a Lamborghini while still working for gov? I realize he would have to pay taxes on it; would there be a penalty in addition to the taxes?

[Ecurb]

Greg,

I think you can only make a full or partial withdrawl when you separate from the gov...however, you can always take out a loan...of which I don't recommend...anyway with the gas prices you would be better off with a VW

Ecurb:)

[MR CARLO]

YOU would probably pay about 33% in taxes & penalties. Then come tax time it would be earned incomed andsend you in a nice high tax bracket. ECURB is right, stick with the VW or a hybrid , I thinka hybrid carcan get you a tax break.

PS- I hit some of my money for 95 Mitsu 3000GT VR4, you know howthat mid-life crisis can be.:^

[GatorinGA]

Can't you get a loan against your TSP account and pay no taxes? When reading the loan information on the TSP site, the only references it makes to having to pay taxes is if you default on your loan:

"If correct loan payments are not received from your agency in accordance with the repayment schedule, you must send in a payment yourself to cover the missing amount. If you do not make up the missed payments within the time limits set by the IRS, the TSP will declare a taxable distribution for default in the amount of the unpaid loan principal and any unpaid interest. The distribution will be subject to income tax for the year in which it is declared. You may also be subject to the 10 percent Internal Revenue Code early withdrawal penalty tax on this distribution."

I've gotten 2 loans in the past, and I do not believe that I paid any taxes on these loans, and the money was put back into my account plus interest at the G-fund rate. This has to be a better idea than getting a loan and paying the bank 7% on a car, or paying 12% interest on a credit card. Right?

[cowboy]

GatorinGA wrote:
Can't you get a loan against your TSP account and pay no taxes? When reading the loan information on the TSP site, the only references it makes to having to pay taxes is if you default on your loan:

"If correct loan payments are not received from your agency in accordance with the repayment schedule, you must send in a payment yourself to cover the missing amount. If you do not make up the missed payments within the time limits set by the IRS, the TSP will declare a taxable distribution for default in the amount of the unpaid loan principal and any unpaid interest. The distribution will be subject to income tax for the year in which it is declared. You may also be subject to the 10 percent Internal Revenue Code early withdrawal penalty tax on this distribution."

I've gotten 2 loans in the past, and I do not believe that I paid any taxes on these loans, and the money was put back into my account plus interest at the G-fund rate. This has to be a better idea than getting a loan and paying the bank 7% on a car, or paying 12% interest on a credit card. Right?



I believe this is for if you default than TSP will declare the remaining initial loan taxable. You can take a loan out and yes the government will allow you to pay it back but they use your taxable money to do so. So essentially you are paying your TSP back that was put in tax free and paying it back with your taxable income. The TSP will take the loan out of your check but I bet your paying tax on the loan amount payment. Essentially you lose the money that is tax free that would be working for you during the time of your loan + you pay with your taxable income plus the G fund interest rate as the cost of your note. The taxis paid by you on your bi-weekly statement prior to being withdrawnto payyour loan so maybe youdon't notice it. I knowsome people that just can't resist taking a TSP loan because of the 4.4% interest rate. All people see is the low interst rate and none of the hidden cost. The big cost is actually the loss of money in the account that could be working for you plus your paying a tax differed fund back with taxable income. Car loans I believe would be very common withdrawl in TSP. I can bet that if you ran simulations of what your account would have in it when you retire prior to your loan being withdrawn and then run it with it drawn out, you would see the hidden costsvery quickly in your account.