TSP Loan Information for 2025

Understanding TSP Loans in 2025

If you are a federal employee or member of the uniformed services with a Thrift Savings Plan (TSP), a TSP loan may be a practical option when you need access to funds for short-term financial needs. While it allows you to tap into your retirement savings, it is not without conditions. In 2025, the TSP loan program remains a structured borrowing tool—available only under specific circumstances and governed by detailed repayment terms. It’s essential that you fully understand the rules to avoid penalties, defaults, or disruptions to your long-term retirement strategy.

What Is a TSP Loan?

A TSP loan lets you borrow directly from your own retirement savings, avoiding early withdrawal penalties. Unlike loans from commercial lenders, a TSP loan doesn’t require a credit check, collateral, or external approval. The amount you borrow is subtracted from your account balance, and repayments, including interest, return to your account.

You can choose from two loan types:

General Purpose Loan – This option is available for any reason, such as home improvements, car repairs, or education costs. No documentation is needed.
Residential Loan – This loan is only for the purchase or construction of a primary residence. It requires supporting documents, such as purchase agreements, mortgage contracts, or construction documentation.

Each loan type comes with its own repayment timeline and usage guidelines, making it critical to select the option that matches your financial needs.

2025 TSP Loan Limits and Eligibility

In 2025, TSP loans are only available to federal employees and members of the uniformed services who are currently employed. If you’re no longer employed in a qualifying position, you’re not eligible for a new loan. To qualify, you must:

Have at least $1,000 in vested account balance.
Be in active pay status to allow loan repayments via payroll deduction.
Not have more than two active loans at the same time. Only one residential loan is allowed.
Have had no outstanding TSP loan balance exceeding $50,000 in the past 12 months.

The maximum loan amount is determined by:

$50,000 minus your highest outstanding loan balance over the last 12 months, or
50% of your vested account balance, whichever is lower.

The minimum you can borrow remains fixed at $1,000, regardless of loan type.

Interest Rates on TSP Loans in 2025

TSP loans have a fixed interest rate, determined by the G Fund rate from the previous month. As of mid-2025, the interest rate for new loans is approximately 4.25%. Once locked in, the rate does not change for the duration of the loan.

All interest payments are credited back into your own TSP account. While this might seem like a benefit, borrowing still has a hidden cost. The funds you remove are no longer invested in potentially higher-yielding funds like the C, S, or I Funds. This lost opportunity for compound growth could diminish your retirement savings in the long term.

Repayment Terms and Rules

TSP loans must be repaid in full within the approved loan term. Payments are automatically deducted from your paycheck, and the first deduction must begin within 60 calendar days after the loan is issued. Here’s how the terms break down:

General Purpose Loans

Repayment term: 1 to 5 years
Documentation: Not required
Processing fee: $50, deducted from the loan disbursement

Residential Loans

Repayment term: 1 to 15 years
Documentation: Required, including proof of home purchase or construction
Processing fee: $100, also deducted from loan disbursement

You may also submit extra payments voluntarily at any time. These must be made directly via check or direct transfer. However, you cannot repay the loan using funds from your TSP account.

If you leave federal service, payroll deductions stop. You must then continue repaying the loan through direct debit or repay the entire outstanding balance within the required time frame to avoid tax penalties.

Reamortization of TSP Loans

In cases where your pay frequency changes or you return from non-pay status, your loan must be reamortized, meaning your repayment schedule is recalculated based on your remaining balance and time left on the loan term. Reamortization is mandatory to maintain regular repayment.

In 2025, a new rule is under consideration that may change how reamortization works. Under the previous method, accrued interest during any interruption was treated separately. Under the proposed 2025 change, this accrued interest would be rolled into the loan’s principal. This would simplify the payment process and bring TSP practices more in line with private-sector loan models.

The public comment period for this rule ended in May 2025, and the rule is expected to take effect later in the year if approved.

What Happens If You Enter Non-Pay Status?

Federal employees sometimes enter non-pay status due to unpaid leave, furlough, or active-duty military service. During this time, loan payments through payroll deductions are not processed. You can request a suspension of payments during this period.

However, note the following:

Interest continues to accrue, even if payments are suspended.
If you’re in non-pay status for over 12 months, you must request a reamortization when you return.
You must notify the TSP loan program in writing and comply with the deadline for reestablishing payments.

Failing to reamortize in a timely manner could lead to loan default and taxable distribution consequences.

Separation from Federal Service with an Outstanding Loan

When you separate from service with an unpaid TSP loan, you still owe the outstanding balance. You are given the option to:

Repay the loan in full before the set deadline.
Continue making scheduled payments by setting up direct debit from your bank.

If you fail to repay on time, the TSP will declare a deemed distribution, meaning:

The remaining balance becomes taxable income.
You may owe a 10% early withdrawal penalty if you are under age 59½.
The balance is reported to the IRS.

Deemed distributions cannot be reversed, even if you repay the amount later. You also lose the tax-deferred growth potential of the repaid amount.

Understanding TSP Loan Default

A loan enters default status if:

You miss more than two consecutive monthly payments.
You fail to reamortize after a required change in payment schedule.
You do not repay the balance after leaving federal service within the specified time.

Once a loan defaults:

It is treated as a taxable distribution.
You may be subject to a 10% IRS penalty depending on your age.
You lose the ability to recover the defaulted amount into your TSP account.

It’s critical to monitor your payments and status updates from TSP to avoid unintentional default.

Restrictions and Waiting Periods for New Loans

Certain restrictions and timing rules apply to all TSP loans:

A 60-day waiting period is required between the closing of one loan and the initiation of another.
You may not refinance an existing loan.
Only one residential loan may be active at any given time.
If you’ve previously defaulted, you must repay the defaulted amount in full before becoming eligible for new loans.

Also, your loan eligibility is recalculated each time you apply. Your loan limit may change based on fluctuations in your TSP balance or prior loan activity.

How to Apply for a TSP Loan in 2025

The application process is handled entirely online through your official TSP account. To apply:

Log in to your TSP account.
Navigate to the Loans section and choose your loan type.
Read and acknowledge the loan agreement and disclosure forms.
Upload necessary documentation (only for residential loans).
Choose a repayment term that fits your budget.
Confirm your banking information for direct deposit.

Once approved, the loan funds are disbursed quickly—typically within a few business days. Keep in mind that loan fees are deducted from the disbursed amount.

TSP Loan and Retirement Strategy

Taking a loan from your TSP might seem like a manageable way to deal with financial shortfalls, but it’s important to see the bigger picture. A loan reduces your invested balance, which may limit future earnings and disrupt compounding returns.

Before initiating a loan, consider:

Can the expense be covered with emergency savings or other liquid assets?
Will taking this loan delay your retirement goals?
What happens if you leave federal service in the middle of repayment?
Are you sacrificing investment gains for short-term relief?

When used strategically and repaid responsibly, TSP loans can serve a useful purpose. But for many, tapping retirement funds should be a last resort, not a go-to funding option.

Managing Your Loan Wisely in 2025

TSP loans provide access to your retirement funds with structured repayment and fixed interest. However, they require careful planning and attention to deadlines. With the proposed changes to reamortization in 2025, some processes may soon become simpler. Until then, knowing the rules, meeting repayment timelines, and understanding the consequences of default remain essential.

If you’re uncertain about borrowing from your TSP or need help developing a repayment strategy, reach out for personalized guidance. You can speak with a licensed agent listed on this website to make sure you’re making the most informed decision for your future.