TSP loans can help with college expenses

Monday - 5/9/2011, 5:46pm EDT

Tom Trabucco, Director of External Affairs, Federal Retirement Thrift Investment Board

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By Jolie Lee
Federal News Radio

If you're looking ahead at how to pay for your child's college education, you might get some help from your Thrift Savings Plan account.

"The first thing all the retirement people tell you is, You save in a retirement plan not to borrow from it but to have it in retirement. And that is true," said Tom Trabucco, director of external affairs at the Federal Retirement Thrift Investment Board, which oversees your TSP.

Trabucco added, however, that the TSP is available if you need to take out loans. When he started investing in the TSP 25 years ago, Trabucco said he knew he would have college expenses for his children so he invested in his TSP at the maximum percent.

"If I needed it for educational purposes it's there and I could borrow it," Trabucco said, which is what he did.

The maximum amount for a loan is $50,000 and is paid back with an interest rate based on the G Fund rate. (For this month, the rate is 2 7/8 percent, Trabucco said.)

Loans are repaid through payroll withholding, he said.

"Keep in mind - when you take out a loan, the funds actually do come out of your account, so they're not earning," Trabucco said.

Trabucco said he did not rely on his TSP alone to pay for his children's tuition, but "it helped an awful lot to know the TSP was there."

Check out the TSP website for more information about loans.