Can You Borrow Against Your Thrift Savings Plan? TSP Loan Rules & Limits
Borrowing from your Thrift Savings Plan (TSP) can provide access to cash without turning to a bank or other lender.
But using retirement savings to cover current expenses can have long-term financial consequences.
So, before taking a TSP loan, you need to important to weigh the benefits against the potential impact on your retirement savings.
Who Is Eligible for a TSP Loan?
All active federal civilian employees and uniformed service members with a TSP account are potentially eligible to borrow, provided they meet certain conditions.
Active Pay Status
No unpaid leave or furlough while repaying
$1,000 Minimum
Balance can’t drop below this after the loan
60-Day Wait
No repeat loan of the same type within 60 days
Spousal Consent
Required for FERS/military; CSRS just notifies
No Court Orders
A qualifying court order blocks any new loan
Note: If you have both a civilian TSP account and a uniformed services TSP account, the eligibility rules depend on the account you borrow from.
When calculating your loan amount, the maximum you can borrow may take information from both accounts into account, even if the loan is issued from only one account.
Types of TSP Loans
TSP offers two loan types:
- General Purpose loans and
- Primary Residence loans.
| Feature | General Purpose Loan | Primary Residence Loan |
|---|---|---|
| Eligible Uses | Any personal or financial need (no questions asked) | Purchase or construction of a principal residence |
| Documentation Required | None | Purchase contract, construction documents, proof of residence |
| Term Length | 1–5 years | 1–15 years |
| Number Allowed | Up to 1 outstanding | Up to 1 outstanding |
| Spousal Consent | Required if married (FERS/US) | Required if married (FERS/US) |
| Minimum Loan Amount | $1,000 (of own contributions) | $1,000 (same) |
| Interest Rate (Fixed) | G Fund rate at request date | G Fund rate at request date |
| Prepayment Allowed | Yes, any time (no penalty) | Yes, any time |
| Tax Considerations | Interest not deductible | Interest not deductible (like GP) |
How Much You Can Borrow (Limits and Special Rules)
Two separate federal rules cap your loan amount, and you get whichever number is lower:
| Rule | Explanation |
|---|---|
| Maximum You Can Borrow | You can borrow the lower amount from these two calculations:
① 50% of your eligible TSP balance ② $50,000 minus any recent TSP loan balance |
| 50% Balance Limit | You cannot borrow more than half of your eligible TSP balance (your contributions plus eligible earnings). |
| $50,000 IRS Limit | The maximum loan is $50,000, but this amount may be reduced if you had an outstanding TSP loan during the previous 12 months. |
| Recent Loan Rule | Even if you repaid a previous TSP loan, the highest outstanding balance you had during the past 12 months can reduce the amount you are allowed to borrow today. |
| Example |
Eligible balance: $100,000 → 50% = $50,000.
Previous loan balance during the last 12 months: $30,000. $50,000 − $30,000 = $20,000. Maximum new TSP loan: $20,000. |
Special Rules
A few special cases worth knowing:
- Combined civilian + uniformed accounts — TSP considers both accounts when calculating your maximum loan amount. You choose which account to borrow from.
- Traditional + Roth TSP — Your loan is taken proportionally from both balances. Repayments go back the same way.
- The $50 administrative fee comes straight out of the loan proceeds; a $5,000 loan nets you $4,950, not the full $5,000.
Repayment and Interest
While you’re actively employed, repayments come out of your paycheck automatically, principal and interest together.
But if you leave federal service, you can keep paying by check, money order, or online transfer, though the schedule may shift to monthly, with the original loan term still in force.
| Topic | What You Need to Know |
|---|---|
| How You Repay the Loan | Payments are automatically deducted from your paycheck while you are working. If you leave federal service, you must continue making payments another way or repay the loan. |
| Interest Rate | The rate is fixed when your loan begins and is based on the TSP G Fund rate. The interest you pay goes back into your own TSP account. |
| Loan Term | General purpose loan: up to 5 years. Residential loan: up to 15 years. |
| Paying Early | You can pay off the loan early with no penalty. |
| Changing Payments (Reamortization) | You may be able to adjust the payment schedule, but the loan cannot go beyond the maximum allowed term. |
| Military Active Duty | Eligible service members may request a reduced interest rate of 6% during qualifying active duty under SCRA rules. |
| If You Stop Paying | The unpaid balance may become a taxable distribution. If you are under age 59½, an additional 10% early withdrawal penalty may apply. |
Tax Implications and Default Consequences
Repayment with after-tax dollars
TSP loan repayments are made with after-tax pay.
When you repay, you’re using money that was not taxed before, but the contribution portion goes in without new taxes since you already paid.
No immediate tax on loan funds
Taking a loan is not a taxable event, unlike a withdrawal.
You avoid the normal 10% early withdrawal penalty and income tax provided you repay on time.
What If You Default on a TSP Loan?
If your loan defaults, the remaining principal is treated as a withdrawal from your account.
You owe ordinary income tax on the unpaid balance.
If under age 59½, a 10% IRS penalty generally applies.
Example: If a $10,000 Traditional TSP loan is not repaid, the unpaid balance may be treated as taxable income. If you are under 59½, you may also owe an additional 10% early withdrawal penalty.
Roth TSP Loans: Taxes depend on whether your Roth contributions qualify for tax-free treatment.
Traditional TSP: An unpaid loan may result in income taxes plus a possible 10% penalty if you’re under age 59½.
Roth TSP: Tax treatment depends on whether the Roth funds qualify for tax-free distribution.
How to Apply for a TSP Loan (Step-by-Step)
Step 1. Confirm eligibility and check your balance
Log into My Account on tsp.gov and navigate to the TSP Loans page; it will show your maximum available loan amount directly.
Step 2. Choose the loan type, amount, and term
Make sure the request stays within both the 50%-of-balance rule and the $50,000 cap.
If you’re married, coordinate with your spouse for the required signature ahead of time.
Step 3. Apply online or by mail
- Online: Log in at tsp.gov and select TSP Loans. Follow prompts to request a new loan.
- Paper: If you prefer to mail, use Form TSP-20 (Loan Application). Complete it and send it to the TSP at the address on the form.
Step 4. Gather required documentation
If taking a Primary Residence loan, gather proof:
- Purchase contracts
- Closing statements
- Builder contracts, etc.
You will need to submit these along with your signed Loan Agreement.
Step 5. Sign and Submit the Loan Agreement
TSP typically gives a five-day window on the pre-filled agreement it sends back.
If you miss that window or submit incomplete paperwork, you’ll need to reapply from scratch.
Step 6. Wait for Approval and Disbursement
Once your paperwork is in, the TSP processes your loan.
Approved funds are deposited after the $50 fee either by direct deposit to your bank or by check, depending on your selection.
Pros
- Low interest rate
- Pay interest back to yourself
- No credit check required
- Quick access to funds
- Easy payroll repayment
- No immediate taxes or penalties
- Flexible use of loan funds
Cons
- Reduces retirement investment growth
- Misses potential market earnings
- Requires regular repayment
- Risk of taxes and penalties if not repaid
- Limits certain withdrawal options
- Includes a loan processing fee
- May reduce future TSP contributions
- Can create repayment issues after leaving federal service
Borrowing Options Compared: TSP Loans vs. Alternatives
Before taking a TSP loan, consider other options:
| Option | Borrowing Amount | Cost / Interest Rate (Approx.) | Credit Check | Notes |
|---|---|---|---|---|
| TSP Loan (General Purpose / Residential) |
Up to 50% of vested balance (max $50k, adjusted for prior loans) | G Fund rate (fixed, typically ~3–5%) | No |
|
| Personal Loan | Varies by lender | Fixed or variable (~6–20%) | Yes |
|
| Home Equity Loan / HELOC | Up to ~80–90% of home value minus existing mortgage | ~5–8% (fixed for HELOAN, variable for HELOC) | Yes |
|
| 401(k) Loan (Private Plan) |
Up to 50% of vested balance (max $50k) | Usually plan-set rate (often based on prime) | No (plan rules apply) |
|
| 401(k) Hardship Withdrawal | Limited to IRS-approved hardship needs | N/A (withdrawal, not a loan) | No |
|
TSP Loan FAQ
A TSP loan reduces the amount invested in your account while the loan is outstanding. Although you repay interest to yourself, you may miss out on potential market growth.
Yes. Your regular TSP contributions and agency matching contributions continue as normal while you repay the loan.
Yes, but only within TSP limits. You can have one General Purpose Loan and one Primary Residence Loan at the same time.
You must repay the loan or the remaining balance may become a taxable distribution. If you are under age 59½, an additional 10% penalty may apply.
No. Once a loan is treated as a taxable distribution, it generally cannot be restored to your TSP account.
Online applications are usually processed faster. Approved loans are often funded within a few business days, while paper applications can take longer.
No. Loan repayments are made with after-tax money but are credited back to your TSP account. Taxes generally apply only if the loan defaults.
No. TSP loans cannot be rolled over. Only eligible retirement account distributions can be transferred.
An unpaid loan balance may become taxable and could be subject to a 10% early withdrawal penalty if you are under age 59½.
No. Your agency contributions and matching funds continue as long as you remain eligible.
Usually no. If you stop receiving pay, you may need to make payments directly to avoid default.
Log in to your TSP account to view your loan balance, repayment schedule, and payment history. You can also contact TSP support for help.
