Like most of us I made one of the worst financial mistakes out there. I robbed my future self. I took out a loan from my Thrift Savings Plan (TSP). For those of you that don’t know, a TSP is a retirement account similar to a 401K or IRA which is offered to military members and other federal employees.
Just as a little background info, when you take out a loan from your TSP you have to agree to monthly deductions from your pay which go to paying off the loan. These payments are automatically deducted from your pay via the Defense Finance and Accounting System (DFAS). If you are like me and you Expiration of Term of Service (ETS) from the military then you become solely responsible for the payments back to your TSP loan. You can chose to stop making payments on the loan but the outstanding balance is then declared as a taxable distribution, meaning instead of a loan it is then reported to the IRS as regular income which you are responsible to pay income taxes on.
I don’t know what possessed me to do this but one day after I had gotten out of the military and the following year had to take a hit on my tax return I decided to use one of the investment calculators to compare the numbers of my TSP now vs if I hadn’t taken this loan out. The numbers were dismal to say the least. I know other people have gone through similar situations whether it was taking a loan out from their 401K, IRA, CD or any other number of long term accounts.
I realized what I did. I allowed my present self to rob my future self. When you do something like this you are forcing yourself to extend your working life. You have to either make more contributions to catch up and replenish the funds that you depleted or (depending on how much you took out) you may have to delay your retirement. Either way you are putting your future self into a precarious position.
Im not saying that there are not time when taking funds out from one of these types of accounts are absolutely necessary but its something to think about. Are you taking money out of one of these accounts for a want or a need? Do you have any other options? Is it worth it?
Lastly, if you do have to put yourself in this position, don’t beat yourself over it. We all make mistakes and we all get into bad situations in our lives. Pick yourself up, get back in the market and get back in fight.
Fine Finance 