Repaying your loan

Payroll deductions

When we pay out your loan, we will notify your payroll office immediately to begin deducting loan payments from your salary each pay period.

Check your leave and earnings statement to be sure that loan payments have started and that they are in the correct amount. Contact your agency or service if payments have not started or if they’re in the wrong amount.

Be aware that you’re responsible for the repayment of your loan regardless of whether your agency or service misses a payment.

If you have two TSP accounts and you want to combine your accounts, you must close any loan in the account you are moving before the accounts can be combined.

Loan interest

When you repay your loan, you repay it with interest. The repayment amount gets deposited back into your account and is invested according to your most recent contribution allocation.

Daily interest on your loan is calculated as each payment is posted and is based on the number of days since the last loan payment and the outstanding loan balance. Your loan interest payments are not tax deductible.

Extra payments

You can make extra loan payments (in addition to your payroll deduction) at any time using a personal check, cashier’s check, or money order. You must send Form TSP-26, Loan Payment Coupon along with your extra payments.

If you use an online banking service to make extra loan payments, make sure that the information the Loan Payment Coupon requires is included on your bank check. If any information is missing, the check will be returned.

Tracking your loan

Your loan transactions show on your quarterly participant statement. Review this information carefully and be sure to report any discrepancies to your agency or service.

You can also track your loan balance and the status of your payments in My Account.

Missed payments

You are responsible for ensuring that the loan payments are correct and submitted on time regardless of whether your agency or service missed your loan payment.

Making up missed payments

At the end of each calendar quarter, we identify all loans with missed payments. If you have missed more than 2½ payments, we will send a notice letting you know that you have until the end of the following calendar quarter to pay the missed amount. You must pay the missed amount directly to us using your own personal funds to avoid a taxable distribution. Your payroll office cannot make up missed payments from your pay.

Exceptions for missed payments

Certain exceptions for missed payments are granted if you are in nonpay status. For more information, visit Your loan in a nonpay status.

Reamortizing your loan

Reamortizing means shortening or lengthening the term of your loan, which changes your payment amount. You may do this at any time as long as you do not exceed the 5-year maximum term for a general purpose loan or the 15-year maximum term for a residential loan. There are no restrictions on the number of reamortizations that you can have during the life of a loan. You can reamortize your loan by logging in to My Account and selecting “TSP Loans” or by calling the ThriftLine. You must ensure that your payroll office begins deducting the new amount from your pay. If the payment amount is not changed and you do not submit the additional amount, you may face serious tax consequences.

Taxable distributions

We will declare a taxable distribution to the IRS and you will owe income taxes on the entire unpaid balance of your loan plus accrued interest:

• If you fail to repay your loan(s) according to the Loan Agreement.
• If you miss a loan payment and you do not make it up within the specified time period.
• If you do not repay your loan in full within 90 days after you separate from federal service.

Once a taxable distribution is declared, you may be able to roll over the taxable amount into an IRA or eligible employer plan within 60 days to avoid taxes and penalties.

Taxable amounts

You will owe income taxes on the taxable amount of the outstanding balance of the loan, including earnings on tax-exempt contributions that were part of your traditional balance. For qualified Roth earnings, the following conditions apply:

• If the taxable distribution is declared because you separate from service, any qualified Roth earnings 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 default on your loan), your Roth earnings will be taxed, even if they were already qualified (or eligible to be paid tax-free).

You will not owe income taxes on any part of your outstanding loan amount that consists of tax-exempt or Roth contributions.

Other consequences of a taxable distribution

• If you’re under age 59½ when the taxable distribution is declared, you may also have to pay a 10% early withdrawal penalty tax.
• A taxable distribution affects your eligibility for another loan. You cannot apply for another loan from the same account within 12 months of the date of the taxable distribution. The only exception is if the taxable distribution was declared due to your separation from federal service: If you are rehired within that 12-month period, you are immediately eligible to apply for another loan.