By Mike Miles
November 18th, 2013 | Uncategorized
Q. I am a longtime CSRS employee with a pretty good Thrift Savings Plan balance. I plan to retire in two years and move to another city when I retire. My spouse is planning to retire in eight months, and we are planning to buy a house in the new city. We would like to buy the new house and begin the transition to the new city without selling our existing home until I retire. We are looking at a number of ways to finance the purchase of the new home and afford a mortgage payment on that house, a mortgage that we should be able to substantially pay off with the proceeds of the sale of our existing home two years from now. I am looking at ways to keep the payments lower and am considering either taking an over-59½ withdrawal from my TSP account or taking a loan. I am considering withdrawing or borrowing an amount equal to about 25 percent of the balance. If I take the withdrawal now, I use up the one-time allowance to take part of the balance and incur immediate tax bills for the amount withdrawn. If, instead, I take an equal amount out as a loan, I do not lose the ability later to withdraw part of my TSP and I don’t create an immediate tax liability.
Because I am CSRS, the loan wouldn’t affect a TSP match that would come if I were a FERS employee. The question is really whether or not I am eligible for a residential loan from TSP. The loan requirements are that it be for a “primary residence.” I assume this means I can’t use this loan program for a vacation home. The house that we would purchase using this loan as part of the down payment will be our principal home two years from now. Would the fact that we are not immediately selling our existing home mean that we cannot use this loan provision? Or does the fact that this will be our principal home in the future allow us to use this loan provision?
A. Like everyone who’s requesting a residential loan, you will be requesting the loan for the purchase of a house that will become your primary residence. How many people are living in the house they’re trying to buy when they request their loan?
The question is really about the timing, and I think you’ll have to submit a loan application to find out for sure. If you’re planning to rent the new home between now and the time you take occupancy, you may have a harder time justifying your application. If practical, you can fall back to a general purpose loan as your “Plan B.”