TSP Rollover to IRA with Outstanding Loan
Hi all,
I am looking into moving a TSP account to an IRA. I understand this does not require witholding, similar to moving a 401(k) to an IRA, correct?
Here is the follow up question: If the TSP has an outstanding loan balance, is it still possible to Rollover the invested portion into an IRA while paying back the outstanding loan portion to the TSP? I see that there are additional regulations as to how many Rollovers/Distributions you can request from a TSP, so when the loan is completely paid back, would it be stuck in the TSP until used for income (assuming the Rollover IRA was processed)?
I’d appreciate any feedback and/or any additional info I may be missing.
Best regards 😀
Permalink Submitted by Alan Spross on Sat, 2010-04-10 00:33
Have you separated from service?
Permalink Submitted by Roland Manangan on Mon, 2010-04-12 16:11
Yes
Permalink Submitted by Alan Spross on Mon, 2010-04-12 17:31
The following is copied from the TSP website:
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If you leave Federal service, you must repay the loan in full, including any interest on the outstanding principal. If you are requesting a withdrawal of your TSP account, delay in repaying your loan will affect the processing of your withdrawal. If you do not repay the loan, the TSP will declare a taxable distribution for the balance of the outstanding principal and interest. The TSP will also declare a taxable distribution to your estate if you have an outstanding TSP loan when you die.
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Therefore, if you want to rollover the plan balance, you would have to re pay the entire loan balance before the rollover OR the plan would process the direct rollover in two parts:
1) 1099R showing the direct rollover net of loan balance
2) Another 1099R showing an offset loan distribution for the outstanding balance. This amount is fully taxable and subject to early withdrawal penalty, BUT is eligible for rollover if you have the money available to complete a rollover within 60 days of the offset loan distribution. If not, even though you receive no funds for the outstanding balance (you already withdrew that money), that amount will now be taxable.
Note that if you are already in default and the plan has issued a deemed distribution, the 1099R will be coded differently. A deemed distribution is also taxable, BUT is not eligible for rollover. From the website it appears that the plan will NOT allow you the direct rollover while you continue to make loan payments to the TSP after that rollover. Any direct rollover would require immediate loan payoff or taxable distribution of the outstanding balance.
The balance in excess of the outstanding loan can be directly rolled over to an IRA without mandatory withholding.
Permalink Submitted by Roland Manangan on Tue, 2010-04-13 16:06
Thanks Alan!
Permalink Submitted by Barbara Meyers on Tue, 2017-05-23 22:31
my nephew wants to borrow from his tsp – where do we start the process
Permalink Submitted by Alan - IRA critic on Tue, 2017-05-23 23:22
Link for TSP loan information here: https://www.tsp.gov/PlanParticipation/LoansAndWithdrawals/loans/index.htmlThere is also a link in this page to download the loan application – TSP 20.