I am 23 and recently separated from the Air Force. I know it's not a smart move but I need the money and want to take out the $10,000 I have in the TSP. Whats the best way to do it avoiding as many fees as I can
Best way to take out TSP before age 60
byu/_Hacky_Sack inMilitaryFinance
Posted by _Hacky_Sack
3 Comments
There is no best way – only one, a withdrawal. You will pay taxes and applicable penalties.
There isn’t really a way to avoid it. You will get hit with a 10% IRS penalty for early withdrawal no matter what, in addition to paying the taxes on the amount withdrawn(unless it’s in a ROTH TSP).
I suppose you could take a TSP loan, but then you will need to put the money back in at some point or you will encounter penalties.
I would avoid touching the TSP unless you have absolutely no other options
It would almost certainly be smarter to take out a personal loan assuming you can get a non-egregious interest rate.
Taking out of your TSP isn’t “not a smart move” is a monumentally stupid move that you will curse your past self for doing for the rest of your life. I’m not familiar enough with personal loans to know if you could use your TSP as an asset for collateral or something, but at least if that were possible then it would still be growing while you pay the loan off and it’ll still be in an account managed by people who know what they’re doing and grow for 40 more years.
Assuming that you retire a bit earlier than most at 63 (picked it because its 40 years from now), then you aren’t spending 10,000 bucks – you’re spending $100,000 to do whatever you need to do with that money right now. That $10,000 should on average be worth $100,000 by the time you retire or more if inflation is worse, so ask yourself if you’re okay with spending 100k on whatever it is you think you need it for before you spend it.
Don’t be scared to take on debt – I think one of the first things they teach kids about finance when they’re first learning is to try and avoid debt, but in this case if you take out a personal loan even at a high interest rate for 10 years you will be wealthier by the time you pay it off than if you take out of your TSP now. Seriously, go look into loans or credit cards first (but don’t go crazy – there is a reason they teach you to try and avoid these things).
I’m assuming you’re in a quick bind and need money fast – but you’re literally going to set 100k on fire when you could’ve called a couple banks and resolved it with minimal future-destroying.