TSP Loan Rules 2026: Rates, Limits, and What Happens If You Leave

Last Updated: February 19, 2026 Reading Time: 12 min

A TSP loan lets you borrow from your own retirement savings with no credit check and a $50 fee. The interest rate is 4.25% right now. You pay yourself back through payroll deductions.

Sounds simple enough. But in 2026, with RIFs, VERA offers, and agency restructuring pushing thousands of federal employees toward separation, the question isn't just "should I take a TSP loan?" It's "what happens to my loan if I lose my job?"

This guide covers both sides: how TSP loans work, and what you need to know before borrowing when your federal career might be in flux.

Key Takeaways

• TSP loans let you borrow $1,000 to $50,000 at the G Fund rate, currently 4.25%, with no credit check
• Two types: General Purpose (any reason, 1-5 year term, $50 fee) and Residential (home purchase, 1-15 year term, $100 fee)
• If you leave federal service with an outstanding loan, you can keep making payments or repay in full. Default makes the balance a taxable distribution.
• The QPLO rollover lets you avoid taxes by rolling the defaulted amount into an IRA before your tax filing deadline, not the old 60-day window
• A TSP loan is almost always better than a hardship withdrawal. Loans avoid taxes, penalties, and contribution suspensions.

General purpose vs. residential: two loan types

The TSP offers two loan types. The rules are different for each.

Feature	General Purpose	Residential
Purpose	Any reason	Purchase or build a primary residence
Documentation	None	Purchase contract, closing disclosure, or builder's agreement
Repayment term	1-5 years	1-15 years
Processing fee	$50	$100
Interest rate	G Fund rate, fixed for life of loan	Same
Max outstanding	2	1
Credit check	No	No
Prepayment penalty	None	None

The interest rate is locked at the G Fund rate from the month before you apply. In January-February 2026, that's 4.25%. Once locked, the rate doesn't change for the life of your loan, even if the G Fund rate moves later.

Since a 2022 rule change, you can have up to two loans outstanding at the same time. You can have two general purpose loans, or one of each type. You cannot have two residential loans.

One more rule: after you fully repay a loan, you must wait 60 days before taking a new one.

How much you can borrow

The TSP loan limits trip people up, especially the 12-month lookback rule.

Minimum: $1,000

Maximum: The smallest of these three numbers:

1. Your own employee contributions plus their earnings (agency match and automatic 1% don't count)
2. 50% of your vested account balance, or $10,000, whichever is greater, minus any outstanding loan balance
3. $50,000 minus your highest outstanding loan balance in the last 12 months

That third rule is the one most people miss. If you had a $40,000 loan six months ago and paid it off, your current maximum is $10,000 ($50,000 minus $40,000), even though you have no loan outstanding right now. The lookback resets 12 months after your highest balance.

How repayment works

While you're employed, payments happen automatically through payroll deductions. You'll see the deduction on your Leave and Earnings Statement every pay period.

A few things to know:

• Payments are split between principal and interest. All of it goes back into your TSP account.
• You can make extra payments at any time with no prepayment penalty.
• If you go into nonpay status (furlough, LWOP, military leave), payments pause. When you return, the loan reamortizes automatically under the December 2025 FRTIB rule.

That last point is new. Before December 2025, returning from nonpay status with a TSP loan required you to take separate action to cure missed payments. Now your resumed payroll deductions automatically apply to what you missed. Small change, but it matters if you've been furloughed during a government shutdown.

What happens if you leave federal service with a TSP loan

This is the section that matters most in 2026. With DOGE-driven RIFs and VERA/VSIP offers at multiple agencies, a lot of federal employees are borrowing from the TSP while also facing potential separation.

If you leave federal service (voluntarily, through RIF, or retirement) with an outstanding TSP loan, you have three options:

Option 1: Pay it off in full

Repay the entire outstanding balance. This avoids all tax consequences. You can do this at any time after separation.

Option 2: Keep making monthly payments

You can set up direct payments via check, money order, or direct debit. The payments must continue within your original loan term. You can't extend the timeline just because you left. The TSP will send you payment instructions after separation.

Option 3: Default

If you stop paying, the TSP declares the outstanding balance (plus accrued interest) as a taxable distribution. This is reported on Form 1099-R.

The tax hit:

• The unpaid balance is taxed as ordinary income at your marginal rate
• If you're under age 59.5, you owe an additional 10% early withdrawal penalty
• Exception: If you separated in or after the calendar year you turned 55, the 10% penalty doesn't apply (you still owe income tax)

The QPLO rollover (most people don't know about this)

This is worth paying attention to. Under the Tax Cuts and Jobs Act, if your TSP loan is declared a taxable distribution because you separated from service, it counts as a "Qualified Plan Loan Offset" (QPLO). That gives you until your tax filing deadline, including extensions, to roll the amount into an IRA or another eligible employer plan.

That's much more generous than the standard 60-day rollover window that most articles cite.

Example: You separate in July 2026 with a $20,000 outstanding TSP loan and can't repay it. The TSP declares it a taxable distribution. If you file a tax extension, you have until October 15, 2027 to roll $20,000 of personal funds into an IRA. Complete the rollover, and you owe zero tax and zero penalty.

Most competitor guides either don't mention QPLO at all or incorrectly state you have 60 days. This deadline change has been in effect since January 2018.

The real cost of a TSP loan: opportunity cost

A TSP loan doesn't just cost you the processing fee. When you borrow from your TSP, the borrowed amount leaves your investment allocation and earns the G Fund rate instead. If you were invested in C, S, or I Funds, you're giving up the difference in returns.

Loan Amount	Value at 8% (5 years)	Value at 4.25% (G Fund)	Lost Growth
$10,000	$14,693	$12,314	~$2,380
$25,000	$36,733	$30,786	~$5,947
$50,000	$73,466	$61,571	~$11,895

These are simplified estimates. Your actual opportunity cost depends on fund allocation, market conditions, and repayment schedule (repaid funds get reinvested progressively). But the pattern is clear: the bigger the loan and the longer the term, the more growth you miss.

There's also the "double taxation" argument you'll see online. TSP loan interest is paid with after-tax dollars, and then taxed again when you withdraw in retirement. This is real, but the impact is often overstated. The same thing happens with any after-tax contribution you make. It's a cost, but it's not a reason to avoid a TSP loan if you genuinely need the money.

Use the TSP Calculator to model how a loan affects your projected balance at retirement.

TSP loan vs. hardship withdrawal

If you need money from your TSP, a loan is almost always the better option. Here's the comparison:

Feature	TSP Loan	Hardship Withdrawal
Must repay?	Yes (payroll deductions)	No, permanent
Taxable?	No (unless you default)	Yes, immediately
10% early penalty?	No (unless you default)	Yes, if under 59.5
Impact on contributions	None	Suspended for 6 months
Impact on agency match	None	Lose 6 months of matching
Eligible reasons	Any (GP) or home (residential)	5 specific hardship conditions
Processing fee	$50 or $100	None
Impact on retirement	Temporary	Permanent reduction

The hardship withdrawal permanently removes money from your account, triggers immediate taxes and penalties, and suspends your contributions for 6 months. That contribution suspension also means losing 6 months of agency matching if you're a FERS employee.

A TSP loan costs you $50 and some missed investment growth. You pay yourself back.

The only scenarios where a hardship withdrawal makes sense: you already have the maximum loans outstanding, you can't afford repayments, or your need exceeds the $50,000 loan cap.

For a deeper look at hardship rules, see the TSP Withdrawal Guide.

How to apply for a TSP loan

1. Log in to your account at TSP.gov
2. Go to the Loans section
3. Select General Purpose or Residential
4. Enter the amount you want to borrow
5. Review the repayment terms, interest rate, and fee
6. Submit documentation (residential loans only)
7. Sign the loan agreement electronically

Online applications typically process in 3 to 5 business days. Paper applications (Form TSP-20) take several weeks.

Eligibility checklist

Before you apply, make sure you meet all of these:

• You're an active federal civilian or uniformed services member, currently in pay status
• Your TSP account has at least $1,000 in employee contributions and earnings
• No court orders restrict your TSP account
• You haven't repaid a TSP loan in full within the last 60 days
• You have fewer than 2 outstanding loans (and no more than 1 residential)
• You haven't separated or retired

2025 rule changes that affect TSP loans

Two FRTIB rule changes finalized in 2025 affect how TSP loans work:

Reamortization formula (July 2025): When a TSP loan is reamortized, such as after a return from nonpay status, accrued interest is now combined with the outstanding principal before recalculating payments. This slightly increases total interest paid on reamortized loans. It affects roughly 1% of TSP loans.

Missed payment cure (December 2025): When you return to pay status after a gap, your resumed payroll deductions now automatically apply to missed payments. Before this rule, you had to take separate action to cure missed payments. This makes life easier for employees returning from furlough or LWOP.

Both rules are relatively minor for most borrowers. But if you've been through a furlough or nonpay period recently, the missed payment cure rule is worth knowing about.

Project your TSP balance

Before taking a TSP loan, run the numbers. Use the TSP Calculator to see how borrowing affects your projected balance at retirement. Adjust your contribution rate, expected returns, and loan amount to compare scenarios.

If you're considering separation, the Severance Pay Calculator can help you estimate what you'd receive in a RIF, and the VERA/VSIP Guide covers early retirement eligibility.

Project Your TSP Balance →

Frequently asked questions

How much can I borrow from my TSP?

You can borrow between $1,000 and $50,000. The maximum is the smallest of: your own contributions and earnings, 50% of your vested account balance (or $10,000, whichever is greater) minus any outstanding loan balance, or $50,000 minus your highest outstanding loan balance in the last 12 months.

What is the TSP loan interest rate in 2026?

The TSP loan interest rate is the G Fund rate from the month before you apply, locked for the life of the loan. As of January-February 2026, the G Fund rate is 4.250%. This rate is fixed once your loan is issued.

What happens to my TSP loan if I get fired or RIF'd?

You have three options: repay the loan in full, set up monthly direct payments within the original loan term, or default. If you default, the unpaid balance becomes a taxable distribution. If you're under 59.5, you also owe a 10% early withdrawal penalty, unless you separated in or after the calendar year you turned 55. You can avoid taxes by rolling the amount into an IRA before your tax filing deadline for the year of separation.

Can I take a TSP loan for a home purchase?

Yes. A TSP residential loan covers the purchase or construction of a primary residence. You need documentation like a signed purchase contract or closing disclosure. Repayment terms are 1-15 years with a $100 processing fee. The interest rate is the same G Fund rate as general purpose loans.

How long do I have to repay a TSP loan?

General purpose loans: 1-5 years. Residential loans: 1-15 years. Payments come through payroll deductions while employed. If you separate, you must continue payments within the original term via check, money order, or direct debit.

Is a TSP loan better than a hardship withdrawal?

Almost always, yes. A TSP loan costs $50 in fees and temporary lost investment earnings, but you repay yourself with interest. A hardship withdrawal permanently reduces your retirement savings, is immediately taxable, may carry a 10% early penalty if under 59.5, and suspends your contributions for 6 months, losing agency matching for FERS employees.

Can I have two TSP loans at the same time?

Yes. Since a 2022 FRTIB rule change, you can have up to two outstanding loans per TSP account. You can have two general purpose loans, or one general purpose and one residential. You can't have two residential loans at the same time.

Related resources

• TSP Calculator: Project your TSP balance with different contribution and loan scenarios
• TSP Guide 2026: Complete guide to TSP funds, limits, and withdrawal options
• TSP Withdrawal Guide: Post-separation withdrawal options, RMDs, and Rule of 55
• TSP 1099-R Tax Guide: How to report TSP distributions on your taxes
• TSP G Fund Analysis: Is the G Fund keeping up with inflation?
• VERA/VSIP Guide 2026: Early retirement and buyout eligibility
• Severance Pay Calculator: Estimate your severance if facing a RIF

Sources: TSP.gov Loan Basics, TSP Loan Booklet (tspbk04), TSP Fact Sheet: Leaving Federal Service (tspfs29), 5 CFR 1655, IRS: Plan Loan Offsets, FRTIB Reamortization Rule, FRTIB Missed Payments Rule, TSPFolio G Fund Rate