Ensure a seamless transition when you transfer from one agency to another.
- Avoid Costly Mistakes
- Inform Your New Agency About Your TSP Loan
- Verify Your First Loan Payment
- Determine if You Need to Reamortize Your Loan
Avoid Costly Mistakes
It is very important to inform your new agency that you have a TSP loan. Otherwise, you may miss payments that you will have to make up from your personal funds, even if it is through no fault of your own.
If you do not make up your missed loan payments, the TSP will declare a taxable distribution on the entire unpaid balance (including any accrued interest). This means that the IRS will consider the unpaid balance of your loan to be taxable income. If you are under age 59½, you may have to pay a 10% early withdrawal penalty tax on the taxable portion of the loan.
For more detailed information, refer to the TSP booklet Loans.
Inform Your New Agency About Your TSP Loan
Immediately let your new agency know that you have a TSP loan.
Provide a copy of your Loan Agreement, a copy of the TSP notice confirming a reamortization of your loan, or even a copy of your leave and earnings statement, so that your agency will know what amount to deduct from your pay each pay period.
Your new agency can also contact your former agency or the TSP Agency Technical Support unit for this information.
Verify Your First Loan Payment
When you receive your first pay, check your leave and earnings statement to verify that your loan payment has been deducted and that the amount is correct.
If your loan payment has not been made (or the amount is incorrect), follow up immediately with your agency. However, you may not want to wait for your agency to establish your payments.
For each loan payment that is missed through payroll deduction:
- Mail a loan payment by personal check directly to the TSP, along with Form TSP-26, Loan Payment Coupon.
- Continue to do this each pay period until your agency begins deducting the payments so that your loan will not go into arrears.
Determine if You Need to Reamortize Your Loan
If your pay cycle changes when you transfer to a new agency, you will need to reamortize your loan so that your loan payment amount will change to accommodate your new pay schedule.
For example, if you were going from a monthly pay schedule to a biweekly pay schedule, and you did not reamortize, you would go from paying 12 loan payments a year to paying 26 loan payments a year, which could be a considerable drain on your paycheck.
If, on the other hand, you were going from a semimonthly (twice a month) pay schedule to a monthly pay schedule, your loan payments would be cut in half, and your loan would quickly go into arrears.
