I am a federal employee and make contributions to the federal Thrift Savings Plan. Its like a 401k, but for federal employees. I have the option of borrowing money from it to buy a home. Will I be repaying that loan with tax exempt dollars?
2007-01-23 05:49:37 · 1 answers · asked by Mike K 2 in Business & Finance ➔ Personal Finance
You will be repaying your loan with your take-home pay after taxes.... and pay taxes on that money again when you withdraw it. You are better off building up a regular savings account so you don't have to dip into your retirement plan and pay double taxes on the same money. (But still contribute to the TSP!)
2007-01-23 06:06:13 · answer #1 · answered by zmj 4 · 0⤊ 0⤋
Above is correct. Also, if you borrow against a retirement plan and you quit, get fired, whatever the entire balance of the loan is due in a very short period of time. If you do not pay it back in within the time limit they will slap you with penalties and taxes. Penalties and taxes can wipe out 30-40 % of your money. In other words, don't do this if you can in any way help it. You would be in a much more stable position if you saved up the down payment and did not touch retirement funds. Incidently, it's set up this way to keep you from borrowing against then funds, quitting a job and not having to pay penalties and taxes.
2007-01-23 06:19:21 · answer #2 · answered by ontopofoldsmokie 6 · 0⤊ 0⤋