TSP Loans and In-Service Withdrawals

Chapter 6: Section 3

Loans and in-service withdrawals offer limited access to a TSP account while still employed (neither apply after separation; for post-separation withdrawal options, see Section 4 of this chapter). They serve different purposes and have unique rules. One primary difference is that while money drawn out as a loan must be repaid into the account, money taken out as an in-service withdrawal may not be repaid. Thus, an in-service withdrawal permanently depletes the account while a loan does not. Both loans and in-service withdrawals are distributed proportionately from each TSP fund in which you are invested, and proportionately from traditional and Roth balances, for those with both. See below for a policy change to take effect in September 2019 regarding in-service withdrawals.


To be eligible to borrow money from their TSP accounts, participants must be currently employed and meet the following criteria: 

• Their TSP account must have at least $1,000 in employee investments and associated earnings. 

• They have not repaid a TSP loan of the same type in full within the past 60 days.

• They must not have had a taxable distribution on a loan within the past 12 months, unless the taxable distribution resulted from separation from federal service.

It is not necessary to be currently making investments to the TSP in order to take out a loan.

Employees in unpaid status cannot take out loans unless they are on a continuous furlough of less than 31 days or on a sporadic furlough—of, for example, one or two days per pay period. Loans are allowed in indeterminate “shutdowns” on the theory that the shutdown is likely to be over in time for the employee to begin making repayments within 60 days through payroll withholding, as TSP rules require, 

Those who already have loans outstanding when beginning unpaid status must remain current on the payments or notify the TSP about that status and request a suspension of the payments, If approved, suspensions last until return to paid status, but no more than one year unless the unpaid status is due to active military service. Otherwise a taxable distribution may be declared. See the fact sheet Effect of Nonpay Status on Your TSP Account at www.tsp.gov/forms/allPublications.html. Federal Employees Retirement System-covered employees must get spousal consent through a signature on the TSP-provided Loan Agreement form, while the TSP will notify spouses of Civil Service Retirement System-covered employees of a loan application. Exceptions are permitted in rare circumstances.

General purpose loans are available for a repayment period of one to five years. Documentation supporting the amount of the loan request is not required. Loans for the purchase of a primary residence are available for a repayment period of one to 15 years. Documentation is required for residential loans. Participants may have no more than one loan of each type at any one time.

A loan cannot be taken from an account that has a hold on it due to a court order until the order has been satisfied.

There is a $50 processing fee per loan, which is deducted from the loan payout. 

When you repay a loan, the money is invested in your account according to your most recent investment allocation.

You can request a loan by filing Form TSP-20, Loan Application, available through agency personnel offices or through www.tsp.gov. You also can request a loan directly through that site. Depending on your retirement system coverage, marital status and type of loan, you will either be able to complete the process online or will be instructed to print out the partially completed Loan Agreement and mail it to the TSP with any additional required information before a date given on the agreement. 

For those with both traditional and Roth balances, loans are drawn from each type of balance on a prorated basis and are repaid to each based on that ratio.

Maximum Loan Amount—A loan amount cannot exceed the smallest of: 

• your investments and their earnings in your civilian or uniformed services account (that is, the account from which you are taking the loan), not including any outstanding loan balance; 

• 50 percent of your total vested account balance (including any outstanding loan balance) or $10,000, whichever is greater, minus any outstanding loan balance; or 

• $50,000 minus your highest outstanding loan balance, if any, during the last 12 months. Civilian and military TSP accounts are combined for purposes of the second and third tests. An online calculator is at www.tsp.gov

Payment includes interest; the rate is the G Fund rate at the time the loan application is received. Payment typically is made through payroll deductions, but prepayment in full or in part is permitted. Loans can be re-amortized at any time within the five-year maximum for general purpose loans and the 15-year maximum for residential loans.

Taxable Distributions—If you fail to repay your loan in accordance with your loan agreement (or your most recent reamortization), or you do not repay your loan when you separate from service, the TSP will report a distribution to the IRS. You will owe income taxes on the taxable amount of the outstanding balance of the loan and possibly a 10 percent early withdrawal penalty tax.

You will not owe income taxes on any part of your outstanding loan amount that consists of tax-exempt active duty military combat zone pay investments or Roth investments. You will owe taxes on the earnings on tax-exempt investments that were part of your traditional balance. 

If the taxable distribution is declared because you separate from service, any “qualified” Roth earnings (see Roth Balances in Section 1 of this chapter) will not be subject to tax. Roth earnings that are not qualified will be subject to tax. If the taxable distribution is declared for another reason (such as a default on your loan), your Roth earnings will be taxed, even if they were qualified. If a taxable distribution is declared, the loan is closed and you will not be allowed to repay it.

Also see the booklet Loans at www.tsp.gov/forms/allPublications.html.

In-Service Withdrawals

You can withdraw funds from your TSP account for two reasons while still employed by the federal government: (1) financial hardship (documentation of the hardship is required), and (2) a one-time single payment (of all or part of your account) for employees over age 59 1⁄2. (Note: P.L. 115-84 of 2017 authorized multiple age-based withdrawals, subject to a limit and an effective date at the TSP’s discretion. The TSP in 2018 set an effective date of September 2019, with a limit of four per calendar year.) 

In-service withdrawals are subject to federal and in some cases state income taxes. Excise taxes also may apply in certain situations. 

Age-based withdrawals are subject to 20 percent federal income tax withholding (this can be increased but not decreased) unless the payment is transferred into an individual retirement account or other qualified retirement savings plan. Financial hardship in-service withdrawals are not subject to mandatory 20 percent federal income tax withholding but those funds are not transferable to an IRA or similar tax-favored retirement savings plan and the withdrawals are subject to early withdrawal penalties. See Military Reserve Accounts in Section 1 of this chapter for a special consideration applying to activated military Reservists.

The minimum amount under either type of in-service withdrawal is typically $1,000 (a smaller amount is allowed if you are making an age-based withdrawal of your entire account balance). For an age-based withdrawal, you can withdraw up to your vested account balance. For a financial hardship withdrawal, the maximum is the lesser of:

• your investments and earnings (but not agency contributions or their earnings); or

• the amount of your documented need.

Participants may take out in-service withdrawals while on unpaid status, such as a furlough, if they meet the other qualifications. 

Spouses have certain rights in withdrawals, even if the couple is separated at the time. For FERS employees, the law requires spousal consent. Spouses of CSRS employees will be notified by the TSP before an in-service withdrawal is made. Exceptions are allowed in rare circumstances. Further, if there is a court order against your account, such as one to enforce alimony or child support payments, the TSP will place a hold on the account and an in-service withdrawal can’t be made until the court order process has been satisfied.

The forms to use are Form TSP-75, Age-Based In-Service Withdrawal Request, or Form TSP-76, Financial Hardship In-Service Withdrawal Request, available at personnel offices and at www.tsp.gov. You also can begin and in some cases complete withdrawal requests at that site. For those with both traditional and Roth balances, in-service withdrawals are drawn from each type of balance on a prorated basis. Note: Under a policy change effective in September 2019, account holders with both types of balance will have the option to either accept proration or to designate an entire amount to come from one type of balance. 

You must pay federal income taxes on the taxable portion of in-service withdrawals when they are paid directly to you. You will owe taxes on the portion of your withdrawal that comes out of your traditional balance (excluding any tax-exempt investments such as from active duty military combat zone pay). 

You can retain the tax-deferred status of the traditional portion of an age-based withdrawal—although not of a financial hardship withdrawal—by transferring it to an eligible employer plan, a traditional IRA, or a Roth IRA.

You will not pay federal income taxes on the portion of an in-service withdrawal that comes from any Roth investments, and you will only pay taxes on the earnings if they are not “qualified” as described in Roth Balances in Section 1 of this chapter. You can transfer the Roth portion of an age-based withdrawal to a Roth IRA or to a Roth account maintained by an eligible employer plan.

Also see the booklet In-Service Withdrawals at www.tsp.gov/forms/allPublications.html.

Age-Based Withdrawals—Age-based withdrawals are available starting at age 59 1⁄2. The investor need not document any need or reason for making the withdrawal and may withdraw all or a portion of the vested account balance.

Only one age-based withdrawal is allowed and those who take one are ineligible for partial withdrawals after separation (note: effective in September 2019, up to four per year will be allowed, with unlimited post-separation withdrawals allowed regardless of whether an age-based in-service withdrawal was taken). While still employed, those who take these withdrawals remain eligible to continue investing, to take loans, and to take financial hardship withdrawals if otherwise qualified. 

You may be able to transfer or roll over all or part of an age-based withdrawal to a traditional IRA, a Roth IRA, or an eligible employer plan. However, your eligibility depends on the type of money contained in your withdrawal (traditional or Roth) and the type of account that will receive your transfer or rollover. Depending on the type of plan you move your money into, the funds you transfer or roll over may become subject to plan rules different from those that govern the TSP. See the TSP tax notice Tax Information: Payments From Your TSP Account at www.tsp.gov/forms/allPublications.html and check with your tax adviser regarding procedures and tax consequences.

Financial Hardship Withdrawals—Financial hardship withdrawals have no age limit but require the participant to demonstrate a hardship such as negative monthly cash flow, unpaid medical expenses or personal casualty losses that are not covered by insurance, or unpaid legal expenses due to a marital separation or divorce. 

There is no limit on the number of financial hardship withdrawals an individual can make, although they can be no closer together than six months. TSP participants may not make investments in the TSP for six months after the TSP has made the disbursement (the start of the period depends on the employing agency’s payroll cycle). For FERS employees, this means losing agency matching contributions, although agency automatic contributions (1 percent of salary) will continue. The TSP sends notices when employees are again eligible to make investments but they do not resume automatically. Participants must make a new investment election.

As noted above, financial hardship withdrawals are not eligible for transfer to an IRA or similar plan; a standard 10 percent tax withholding applies to the taxable portion, although this can be increased or waived. A financial hardship withdrawal taken under age 59 1⁄2 is subject to a 10 percent early withdrawal penalty tax on the taxable portion.

Also see the booklet In-Service Withdrawals at www.tsp.gov/forms/allPublications.shtml.

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