Thread: Fast Track Loan TSP Loan Payment

Originally Posted by Brett

I just did this, so let me give you an example.

Say you are now putting in $500 per pay in your TSP and you get a loan that costs an additional $200 a pay. What I did was lower my TSP contributions to just $20 and put $700 per pay to the loan balance. It all goes into your account anyway and you pay off the loan quicker.

Remember though:
500*26=13K tax deferred income

20*26=560 tax deferred income

remember the tax implication.

Am I missing something? I have a 13K loan that will be paid back with taxed monies, regardless of rate of payment, right? The sooner I pay it off, the sooner I can start contributing tax defered monies.

Brett,

Example:

Salary 50K/yr

50000-(26*500)=37K taxable income for the year then take out loan payments

50000-(26*20)=49,440 taxable income for the year then take out loan payments

I understand you wanting to pay off a loan early, I REALLY DO!

All I'm pointing out is the tax implication. If taxes aren't an issue for you then no worries. But if your taxable income make you pay MORE in taxes, then it's a double whammy for the year.

buuut...if you can invest that money at better than the g fund pay-off rate, then keep refinancing the loan at that low rate. Current rate is 3.00%. That is cheap money.

Here's another what if scenario- I was asked whether it would make sense to pull 80K out of their 401K balance as a loan to pay off student loans with a 3.5% interest rate and a 15 yr amortization. Won't discuss the wisdom of getting that deep in student loan debt. Ouch! Current monthly pmt is about $ 1200 mo. Intended to pay off anyway at retirement in 5years. There are two pieces of information he didn't have - Interest rate and term available on 401K loan and a projection on earning % he thought he could make if he left it in the 401K. What do you think guys??

I see your point; my taxable income is going to be higher this year, in fact, I could take a BIG hit because I was putting in 15% and now I'm not!! I hadn't considered that.