withdrawing funds

[Bootyjig5]

Hello, We are about to close on a house and still need around $1,000 towards our closing cost. Would it be possible to withdrawal this money from our TSP?

[retiredcg]

There are several factors to be considered when deciding to use the TSP to help finance your home purchase; whether used for a down payment or for help in closing costs. Since there are a number of things to consider, here is the TSP website loan information. It is very clear and well put together:

http://www.tsp.gov/features/chapter11.html

One factor that you really should consider which is outside the scope of the TSP website is whether you should take a TSP Loan out for such a small amount. Besides the loan fee (paltry at $50), try looking at it for the long term. The $1,000 reduction from your TSP at the very early stages of a career can have a significant negative impact, losing you thousands, even tens of thousands of dollars at the back end, say, after 35 years or so.

I usually allude to an example of someone who has dutifully saved for 10 years into TSP or similar investment device suddenly desires a shiny new car for $15,000. (O.K., so it's a compact, no-frills vehicle!). Anyway, he thinks he does the right thing by taking the proceeds from the TSP (reducing it to almost nothing), so that he doesn't have to finance it. Cool! Buy the car with cash; there's no extra money going out for interest over 5 years or so... And, besides, we can start over with the investments again (assuming you're in your 20's), because we have plenty of time...

However, time is what you really need to think of, because at about an 8% return per year on the money that you thought you used for a good thing by not paying out on a normal car loan, you will have lost out on about $95,000 potential return in your investment over the long term. That $15,000 car really cost you $95,000... Kinda steep, isn't it?

It may be worth looking to other avenues (i.e., relatives, etc.) to come up with the extra $1000. Depending on the seller, he (or she) may be willing to write you a short term note (six months or a year) that you could pay off. Maybe there are some things with the property you overlooked that are not quite right (need fixing) that you could negotiate off the price. How about refinancing your current car, if you have any equity in it? Many folks overlook that angle...

Bottom line is that I wouldn't jump in to use the TSP loan program for a minor loan unless you have exhausted other options... I know from whence I speak; I just finished paying off a TSP loan I took out to help my daughter with a down payment for her first home. I knew most of the disadvantages before we settled on that road. I even repaid the loan in one-half the allotted time so I could get back on track, and increased the amount going into my TSP as well... Would I do it again? Only if I had to...

Good Luck! :^