Ask The Experts: Money Matters

By Mike Miles

TSP Withdrawal for a Refi?

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Q: I’m recently separated, keeping the house, and want to refinance in order to release my wife from the original mortgage. I do qualify to refinance, but am upside down by about $30,000. I’m a federal employee, and would have to take the $30,000 out of my TSP retirement account. If I make an early withdrawal from my TSP account that will be used solely for refinancing my home, will I still have to pay tax and the IRS early withdrawal penalty on the $30K?

A: None of the circumstances you mention will excuse you from the early withdrawal penalty. In fact, assuming that you’re under age 59 1/2, you will not have access to your account via withdrawal unless you can prove financial hardship. I suggest that you consider taking a loan from your TSP account instead.

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Comments

  1. SMK Says:
    February 16th, 2010 at 11:42 am

    What? Double taxation might not be cheaper than the penalty. Taking a loan from a TSP or any retirement plan is crazy…especially since tax rates are sure to go up. It’s better to try to find the money elsewhere.

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