neo@web:~/guides $ cat tsp-loans
The TSP offers two loan types: general purpose loans for any purpose (12 to 60 months, $50 fee, no documentation) and primary residence loans for buying or building a primary residence (61 to 180 months, $100 fee, documentation required). You can borrow $1,000 up to the smallest of your own contributions and earnings, 50% of your vested balance (minimum $10,000) capped at $50,000, or the IRS $50,000 limit reduced by recent loan activity. Interest is the G Fund rate, paid back to yourself. The real costs are the money sitting out of the market, the non-refundable fee, and the separation trap: leave federal service and the balance comes due fast.
A TSP loan feels like free money. No credit check, a low interest rate, and the interest goes back into your own account. That framing is exactly why the TSP's own loan page tells participants to think twice. The loan is cheap to originate and expensive in ways that do not show up on the application. This guide covers the rules as the TSP states them, then the costs most borrowers underestimate, then the narrow situations where a loan is defensible.
| General purpose | Primary residence | |
|---|---|---|
| Use | Any purpose | Purchase or construction of a primary residence only, for costs still needed to close |
| Documentation | None required | Required |
| Repayment term | 12 to 60 months | 61 to 180 months |
| Processing fee | $50 | $100 |
The fee comes out of the loan amount and is never returned to your account. It is small relative to most loans, but it is a sunk cost on day one.
You can borrow only while you are still employed. Separated, retired, and beneficiary participants cannot take new TSP loans. Beyond that, four conditions must all be true: you have at least $1,000 of your own contributions and associated earnings in the account; you are currently a federal civilian employee or member of the uniformed services; you are in pay status, because repayment comes out of your paycheck; and you have not paid off a TSP loan in full within the past 30 business days.
Two details catch people. First, agency contributions and their earnings cannot be borrowed, only your own contributions and their earnings. Money in the mutual fund window does not count either until you move it into a core fund. Second, married FERS participants need their spouse's signed consent on the loan agreement; the TSP notifies the spouses of married CSRS participants.
The minimum loan is $1,000. The maximum is the smallest of three tests: your own contributions and earnings; the greater of $10,000 or 50% of your vested balance, capped at $50,000; and the IRS limit of $50,000 minus your highest outstanding loan balance in the previous 12 months, minus any loan currently outstanding. You may have at most two loans outstanding at once, one of each type.
The interest rate is the monthly G Fund rate in effect when the loan is issued, and it stays fixed until the loan is repaid. You pay that interest to yourself: every payment, principal plus interest, goes back into your TSP account and is reinvested according to your current allocation.
Repayment runs through payroll deduction on a schedule you choose within the allowed term, and payments must begin within 60 days of disbursement. You cannot take a new loan for a waiting period after paying one off. If you go on leave without pay, payments can be suspended within limits, but interest keeps accruing.
Start with the obvious: the $50 or $100 fee is gone forever. Next, the opportunity cost, which dwarfs the fee. Every dollar you borrow is a dollar not invested. If the market rises 8% while your loan charges you the G Fund rate of around 4%, you have paid yourself 4% and missed 8%, a 4-point drag on the borrowed amount for the life of the loan. Over a five-year $20,000 loan, that gap compounds into thousands.
Then the tax wrinkle. Loan repayments are made with after-tax dollars, and when you eventually withdraw a traditional balance, that money is taxed again. The interest you "pay yourself" is effectively taxed twice. (Roth repayments follow Roth rules, but the double-taxation point applies to the traditional side most borrowers use.)
The largest cost is the separation trap. If you leave federal service with a loan outstanding, the TSP requires full repayment within a short post-separation window, generally 90 days. Miss it and the outstanding balance becomes a taxable distribution in that year. If you are under 59 and one half, the 10% early withdrawal penalty may apply on top. People who borrow late in their careers, or who are considering leaving, are taking on a deadline they may not be able to meet.
There is also a behavioral cost worth naming. A TSP loan is easy, which makes it tempting for spending that is not an emergency: cars, vacations, home projects. Each loan resets years of compounding on the borrowed amount. The participants who borrow repeatedly often arrive at retirement with far less than their contribution history would suggest.
The defensible cases share three traits: the need is genuine and time-sensitive, the alternative is clearly worse, and you can repay on schedule without stopping contributions. The classic example is high-interest debt: carrying a $15,000 credit card balance at 22% while your TSP earns market returns is a losing trade, and a TSP loan at the G Fund rate can be the cheapest refinance available. A second case is a true emergency where the alternative is a hardship withdrawal, which permanently removes the money and triggers taxes and penalties.
Even then, run the conditions. Keep contributing while you repay, so you do not also lose the agency match. Borrow the minimum you need, not the maximum you qualify for. Choose the shortest term whose payment fits your budget, because a longer term means more years out of the market. And do not borrow if there is any real chance you will separate before the loan is repaid.
When a loan does not make sense: borrowing to invest (you are moving money from investments to cash to move it back), borrowing for depreciating purchases, or borrowing because the application is easier than budgeting. In those cases the loan is not solving a problem; it is renting one from your future self.
Before applying, price the alternatives. A home equity line often carries a comparable rate with tax-deductible interest and no threat to your retirement. A 0% balance transfer card can beat any loan for short-term debt. And an emergency fund, even a small one, exists precisely so retirement accounts never enter the conversation. Participants age 59 and one half or older have another option, age-based in-service withdrawals, which allow up to four withdrawals a year without the loan mechanics, though those are taxable distributions, not loans.
Model the tradeoff with our TSP growth calculator: run your balance with and without the borrowed amount invested to see the opportunity cost in dollars. Confirm current loan terms at tsp.gov before applying.
Data current as of October 2026. Source: Thrift Savings Plan (tsp.gov), TSP Loans page.