Category: TSP

Last verified: October 17, 2026, against the sources linked below. Written by Casey Steward.

A TSP loan is the only loan where you’re both the borrower and the lender, and the lender is unusually forgiving: no credit check, a low fixed rate, and the interest goes back into your own account. That combination makes it popular for two things in particular: a down payment and a pile of credit card debt. It also makes it easy to overlook the real cost, which isn’t the interest. It’s what the borrowed money doesn’t earn while it’s out of the market. Here are the rules, then the numbers.

The short version

• Who can borrow: current federal employees and uniformed services members in pay status with at least $1,000 of their own contributions and earnings. Agency contributions can’t be borrowed.
• Two types: general purpose (12 to 60 months, $50 fee, no paperwork) and primary residence (61 to 180 months, $100 fee, purchase documents required). Maximum $50,000, often less.
• Rate: the G Fund rate, fixed for the life of the loan. TSP.gov listed the current loan rate as 4.875% on October 17, 2026.
• The real cost is missed gains. If the market beats the G Fund rate while your money is out, your account ends up smaller. In our $20,000, 5-year example that gap is about $0 at a 5% return and about $1,900 at 8%. Cutting contributions to afford the payments usually costs far more.
• Credit cards: at a 22% card APR, a TSP loan can save over $11,000 on $20,000 of debt, but only if the cards stay paid off.
• Leaving federal service with a loan balance: keep paying, pay it off, or it becomes a taxable distribution (plus a possible 10% penalty).

The rules

Eligibility

You can apply if all of these are true (TSP.gov; 5 CFR 1655.2):

• You’re a current federal civilian employee or uniformed services member. Separated and retired participants can’t take new loans.
• You’re in pay status, because payments come out of your paycheck. Exception: during a lapse in appropriations, furloughed and excepted employees can still request a loan.
• You have at least $1,000 of your own contributions and their earnings, not counting money in the mutual fund window. Agency automatic (1%) and matching contributions, and their earnings, can’t be borrowed. You can borrow even if you’ve stopped contributing.
• You haven’t repaid a TSP loan in full within the past 30 business days.
• If you’re married and under FERS (or the uniformed services), your spouse must consent. CSRS spouses get notice instead (5 CFR 1655.18). Consenting doesn’t make your spouse responsible for repaying.

You apply in My Account on tsp.gov or through the ThriftLine. The old paper loan application (Form TSP-20) and loan agreements (TSP-21-G and TSP-21-R) are obsolete (TSP Bulletin 23-2).

General purpose vs. primary residence

	General purpose	Primary residence
Use	Anything; no need to say what	Only the future purchase or construction of your primary residence, for costs still needed to close
Repayment term	12 to 60 months	61 to 180 months
Fee (taken from the loan, never returned)	$50	$100
Documentation	None	Signed purchase contract (or builder’s contract for construction), plus a loan estimate or closing disclosure if closing costs are included; due within 30 days of the request

Sources: 5 CFR 1655.5, 1655.20, 1655.21; TSP booklet Loans (1/2026).

A primary residence can be a house, townhouse, condo, co-op shares, or mobile home, bought by you or you and your spouse. The residential loan can’t be used for a second or vacation home, refinancing or paying down a mortgage, renovations or additions, land only, buying out a co-owner, a house you’ve already closed on, or reimbursing yourself for earnest money you already paid. Points, origination fees, and real estate taxes can’t be included either (5 CFR 1655.20).

How many loans: no more than two at a time per account, and no more than one of them can be residential. Two general purpose loans at once is allowed (5 CFR 1655.4).

How much you can borrow

Minimum $1,000. The maximum is the smallest of three tests (5 CFR 1655.6):

1. Your own contributions and earnings, not counting any outstanding loan.
2. 50% of your own contributions and earnings (including any outstanding loan balance) or $10,000, whichever is greater, minus any outstanding loan balance.
3. $50,000 minus your highest outstanding loan balance during the last 12 months.

Example: $60,000 of your own contributions and earnings and no loans in the past year gives a maximum of $30,000 (test 2). The third test is the one that surprises people: per the TSP’s own example, borrow $35,000, repay it in full within 12 months, and your maximum for the rest of that 12-month window is $15,000, even though the money is back. That test comes from the tax code (26 U.S.C. 72(p)(2)(A)). Your available amount moves daily with your balance; My Account shows it.

Interest rate, payments, and where the money goes

• Rate: the G Fund rate in effect on the 15th of the month before you request the loan, fixed until it’s repaid (5 CFR 1655.7). On October 17, 2026, TSP.gov showed the current loan rate as 4.875%. A civilian who goes on active military duty can ask to have a higher rate cut to 6% for that period.
• Payments: by payroll deduction every pay period, starting within 60 days of disbursement. Check your leave and earnings statement; if your agency misses a deduction, it’s still your problem. You can make extra payments or pay it off any time without penalty.
• Where it comes from: proportionally from your traditional and Roth balances, and proportionally from each core fund you hold (5 CFR 1655.9). You can’t choose to borrow only from the G Fund.
• Where it goes back: principal and interest are credited to your account in the same traditional/Roth proportions, invested according to your current contribution allocation.
• Not deductible: TSP loan interest isn’t tax-deductible, even on a residential loan, because the loan isn’t a mortgage. Loan payments also aren’t contributions, so they don’t count toward the annual contribution limit (IRS loan FAQs).

Missed payments, LWOP, and leaving federal service

• Missed payments while employed: if you fall two or more payments behind and don’t catch up by the deadline in the TSP’s notice, or don’t finish by the maximum term, the whole unpaid balance becomes a taxed loan (an IRS “deemed distribution”). It’s taxable income, possibly with the 10% early-withdrawal tax, and it can’t be rolled over. You can still repay it in full before you separate, which restores your account but doesn’t undo the tax (5 CFR 1655.15; IRS FAQ 6).
• Leave without pay or other approved nonpay status: payments are suspended for up to a year (longer for military service), but interest keeps accruing. When you return, the loan is reamortized. If you stay in nonpay status a year or more and don’t resume payments, it becomes a taxed loan.
• Leaving federal service: you can no longer take loans, but you can keep an existing one. Your options are to set up payments by check, money order, or direct debit; pay it off; or let it be foreclosed. If you don’t start payments or pay it off by the deadline in the TSP’s notice, the outstanding balance and interest become a loan offset (the TSP calls it a foreclosure), reported to the IRS as a distribution (5 CFR 1655.14(g), 1655.15(b)). The maximum term still applies.
• Taxes and the 10%: the taxable portion is ordinary income. Before 59½ you may owe the 10% additional tax unless an exception applies; the most common one for feds is separating from service in or after the year you turn 55 (50 for federal law enforcement officers, firefighters, air traffic controllers, and other qualified public safety employees, who can also qualify with 25 years of service under the plan) (26 U.S.C. 72(t)(2)(A)(v), (t)(10); IRS).
• The escape hatch: a foreclosed loan after separation is a “qualified plan loan offset.” You can’t repay it to the loan, but you can roll over an equal amount of your own cash into the TSP, another employer plan, or an IRA by your tax-filing due date, including extensions, for the year of the offset, avoiding the tax and the penalty on what you roll over (26 U.S.C. 402(c)(3)(C); IRS FAQ 7; TSP Tax Rules about TSP Payments). A taxed loan while you’re still employed doesn’t get this option.
• Roth wrinkle: the Roth contributions in a taxed or foreclosed loan aren’t taxed again. Roth earnings in a loan taxed while you’re still employed are taxable even if they would otherwise be qualified.

The cost nobody puts on the statement: missed gains

When you borrow, the money is pulled out of your funds and stops earning market returns (5 CFR 1655.9(a)). In its place, your account “earns” the loan interest you pay. So the cost of a TSP loan isn’t the interest rate. It’s the gap between what your funds would have earned and the G Fund rate, on the outstanding balance, for as long as it’s out. When the market does well, that gap is real money. When the market falls, the loan wins. You don’t get to know in advance.

Worked example: $20,000 for 5 years

Hypothetical: a GS-12 step 5 employee (2026 Rest of U.S. pay $101,443, about $3,902 gross per biweekly paycheck; OPM) borrows $20,000 as a general purpose loan for 60 months at 4.875%, repaid in 130 biweekly payments. The $50 fee comes out of the check, so $19,950 arrives.

• Payment: $173.50 every paycheck, about 4.4% of gross pay.
• Total interest: $2,555, all of which goes back into the account.
• Comparison: the same $20,000 left in the C Fund, compounding at an assumed return, vs. the loan payments flowing back in and invested at that same return.

Assumed annual return (not a forecast)	$20,000 left invested, after 5 years	Loan repayments reinvested, after 5 years	Missed gains at year 5	That gap after 20 more years
5%	$25,526	$25,520	about $5	about $14
8%	$29,387	$27,469	$1,918	$8,939
10%	$32,210	$28,842	$3,368	about $22,600

Assumptions: returns are steady and compound smoothly, payments are reinvested as they’re made, and the gap keeps compounding at the same rate to retirement. Real C Fund returns swing widely year to year, including losing years, and past returns don’t predict future ones. Add the $50 fee, which never comes back.

Two takeaways. First, at a 5% return the loan costs almost nothing, because the 4.875% you pay yourself nearly matches it. The cost scales with the spread. Second, even at 8% the missed gains on a $20,000 loan are measured in single-digit thousands by retirement, which is less dramatic than the internet sometimes suggests. The bigger danger is the next section.

Run your own loan amount, term, and return assumptions in the TSP loan calculator.

The real wealth killer: cutting contributions to afford the payment

A $173.50 deduction every payday is noticeable, and the easy way to make it disappear is to lower your TSP contribution. Under FERS, the agency puts in 1% automatically and matches dollar for dollar on the first 3% you contribute and 50 cents per dollar on the next 2%, so contributing 5% gets you the full 5% from your agency (5 U.S.C. 8432(c)). The TSP’s own loan booklet warns about exactly this.

Suppose our GS-12 drops from 5% to 1% for the 5 years of the loan:

• Own contributions skipped: 4% × $101,443 = $4,058 a year.
• Agency match lost: the match falls from 4% to 1%, so $3,043 a year of free money disappears. The automatic 1% continues.
• Over 5 years at an assumed 8%, the missing $7,101 a year, invested each paycheck, would have grown to about $43,000, and to about $200,000 after 20 more years. The lost match alone accounts for about $86,000 of that.

Compare that with the $1,918 of missed gains on the loan itself. If taking the loan means cutting below 5%, the cutback is the expensive part.

Using a TSP loan to pay off credit cards

The Federal Reserve’s G.19 release puts the average credit card rate for accounts assessed interest at 22.36% in August 2026 (21.19% across all accounts) (Federal Reserve G.19, released October 7, 2026). Against a 4.875% TSP loan, the math isn’t close.

Hypothetical: $20,000 of card debt at 22.36%, compared over the same 5 years.

	Pay the cards over 60 months	TSP loan of $20,050 (covers the $50 fee), 60 months
Payment	$556 a month	$173.93 per biweekly paycheck (about $377 a month)
Interest paid	$13,389, gone to the bank	$2,561, back into your own account
Missed gains in the TSP	None	About $5 at a 5% return; $1,923 at 8%
Rough net cost	$13,389	$55 to about $1,970 (fee plus missed gains)

On paper, the loan comes out about $11,400 to $13,300 ahead. The interest on both paths is paid with after-tax dollars, so taxes don’t change the comparison.

The catch is behavior, not math. A TSP loan doesn’t close the cards; it just empties them. If the balances creep back up, you end up with the card debt and a TSP loan, a smaller paycheck, and fewer options next time. A few guardrails if you go this route:

• Know why the balance built up. A one-time hit (medical bills, a move, a car repair) is a better fit than ongoing overspending.
• Stop using the paid-off cards, or at least keep the limits from being tempting, until the TSP loan is gone.
• Keep contributing at least 5% if you’re FERS. If the payment means cutting below the match, that’s a sign the loan is too big or the budget doesn’t work yet.
• Pick the shortest term you can comfortably afford. Less time out of the market means fewer missed gains.
• Remember that leaving federal service with a balance means repaying on your own schedule or facing a taxable distribution. If you think you might leave soon, factor that in.

Using a residential loan for a house

Hypothetical: a GS-13 step 5 employee (2026 Rest of U.S. pay $120,629, about $4,640 per biweekly paycheck) is buying a $350,000 home and has $30,000 in cash. A $40,000 primary residence loan for 15 years at 4.875% would bring the down payment to $70,000, or 20%.

• TSP payment: $144.69 per paycheck (about 3.1% of gross pay) for 180 months; $16,428 of total interest, all of it back into the account.
• Mortgage comparison: Freddie Mac’s 30-year fixed average was 7.40% as of October 15, 2026 (Freddie Mac PMMS). At that rate, a $280,000 mortgage costs $1,939 a month in principal and interest, vs. $2,216 for $320,000, a $277-a-month difference, before property taxes and insurance.
• PMI: conventional loans with less than 20% down usually carry private mortgage insurance. Costs vary with credit score, loan size, and down payment, so get a quote. If PMI ran 0.5% of the loan a year (an illustrative assumption), $320,000 would carry about $133 a month. You can ask to cancel PMI when the balance is scheduled to reach 80% of the original value, and it ends automatically at 78% (CFPB). On our $320,000 loan at 7.40%, that’s roughly 10 to 11 years of scheduled payments, or about $17,000 of PMI at our assumed rate if you never prepay or get a new appraisal.

Missed gains over 15 years on the $40,000 (same method as above):

Assumed annual return	$40,000 left invested, after 15 years	Loan repayments reinvested	Missed gains
5%	$83,157	$83,110	about $47
8%	$126,887	$106,018	$20,869
10%	$167,090	$125,175	$41,915

The trade-off: the residential loan avoids PMI and borrows at a rate below the going mortgage rate, and the interest goes to you. Against that: 15 years is a long time for $40,000 to sit out of the market, so missed gains could exceed the PMI and interest savings in a strong market; you’re adding a second monthly payment at the moment homeownership costs peak; and the repayment term outlasts many people’s job plans.

Job-change risk is real but manageable. Under current TSP rules, separated participants can keep repaying by direct debit or check instead of paying the balance off immediately. Miss the deadline to set that up, though, and the balance becomes a taxable loan offset. On $35,000 left on the loan, that’s $35,000 of extra income, plus possibly $3,500 of penalty if you’re under 55 when you separate (unless you can come up with the cash to roll it over by your tax deadline). Ask your mortgage lender how it treats the TSP loan payment when it qualifies you.

Other ways to avoid PMI or lower it: a bigger cash down payment over time, lender-paid PMI options, or a smaller house. VA and FHA loans have their own mortgage insurance rules.

The “double taxation” claim

You’ll hear that TSP loans are “taxed twice.” Here’s what’s true:

• Principal: not double-taxed. You receive the loan tax-free and repay it with after-tax pay. When the traditional money eventually comes out in retirement, it’s taxed once. The after-tax repayments just restore the pre-tax money you borrowed.
• Interest: technically taxed twice, but it’s small and it’s not unique. You pay the interest from after-tax pay, it lands in your traditional balance, and it’s taxed again when withdrawn. On our $20,000 loan, the traditional share of $2,555 of interest is the only amount affected. Any loan from a bank also uses after-tax dollars for interest, and that money doesn’t come back to you at all.
• Roth balances: the Roth share of your loan is repaid after-tax into the Roth balance, and qualified Roth withdrawals aren’t taxed, so there’s no second tax there.

The tax angle is a rounding error next to missed gains and contribution cuts. The thing that actually gets taxed is a loan you don’t repay.

When it can make sense, and when it usually doesn’t

Can make sense when…

• You’re replacing high-interest debt (cards, payday loans) and have fixed what caused it.
• A residential loan lets you reach 20% down and avoid PMI, and you can carry both payments comfortably.
• You can keep contributing at least 5% (FERS) while repaying.
• Your job is stable, or you’d be able to keep paying or roll over the balance if you left.
• The alternative is a hardship withdrawal, which is taxed, possibly penalized, and never goes back in.

Usually doesn’t when…

• The payment would push you below the full match.
• It’s for spending that will recur next year (vacations, holiday shopping, a habit).
• You’re likely to leave federal service before payoff and wouldn’t have the cash to roll over the offset.
• You’d run the cards back up.
• You’re borrowing to invest elsewhere (see the FAQ).

FAQ

What is the current TSP loan interest rate?

TSP.gov showed 4.875% on October 17, 2026. The rate changes monthly with the G Fund, and yours is locked in when you apply.

Can I take a TSP loan if I’ve stopped contributing?

Yes, as long as you’re employed, in pay status, and have at least $1,000 of your own contributions and earnings.

Can I pay off a TSP loan early?

Yes, any time, with no penalty, by check, money order, or direct debit. Wait 30 business days after payoff before applying for another loan.

Does a TSP loan show up on my credit report?

The TSP’s eligibility rules don’t include a credit check, and the TSP’s materials don’t describe reporting loans to credit bureaus. A mortgage lender may still ask about the payment, so disclose it and ask how they count it.

What happens to my TSP loan if I retire?

You can keep repaying on your own, pay it off, or let it be foreclosed and taxed. If you retire in or after the year you turn 55 (50 for public safety employees), a foreclosure is taxable but not subject to the 10% penalty. See our FERS retirement checklist for where this fits in the timeline.

Does it ever make sense to take a TSP loan to invest in the stock market outside the TSP?

Almost never. You’d be selling stock funds inside a tax-sheltered account to buy similar stock in a taxable account: the same market exposure, except now dividends and gains are taxable. You repay with after-tax payroll dollars, you pay $50 for the privilege, and the TSP’s funds already cost about 0.034% to 0.051% a year (2025 TSP expenses), so you’re unlikely to buy anything cheaper. And if you leave federal service before it’s paid off and don’t keep up payments, the balance becomes a taxable distribution, plus the 10% penalty if you’re under 59½ and no exception applies, such as separating in or after the year you turn 55.

Is a TSP loan better than a hardship withdrawal?

Usually, if you can afford the payments. A hardship withdrawal is permanent, taxable, and may carry the 10% penalty. A loan goes back in.

Related: Should You Roll Over Your TSP or Keep It? · Retire at Your MRA and Take a New Job? · FERS Retirement Checklist · Retiring Early as a Federal Employee

Sources

• TSP, TSP Loans (current loan rate read October 17, 2026); TSP booklet Loans: General Purpose and Primary Residence (TSPBK04, 1/2026); TSP booklet Tax Rules about TSP Payments (TSPBK26, 4/2026); TSP Bulletin 23-2, Obsolete Forms; TSP, Expenses and fees
• 5 CFR Part 1655, Loan Program (1655.2, 1655.4–1655.7, 1655.9, 1655.14–1655.15, 1655.18, 1655.20–1655.21)
• 26 U.S.C. 72(p) and 72(t); 26 U.S.C. 402(c)(3)(C)
• IRS, Retirement plans FAQs regarding loans; IRS, Exceptions to tax on early distributions
• Federal Reserve, G.19 Consumer Credit (October 7, 2026 release)
• Freddie Mac, Primary Mortgage Market Survey (October 15, 2026); CFPB, When can I remove PMI?
• OPM, 2026 General Schedule pay tables; 5 U.S.C. 8432(c) (agency contributions)
• Model: The High Three’s own calculations from the assumptions above (level biweekly payments, smooth compounding, payments reinvested when made).