Author: mrsonedollarallowance

401k/TSP Loans

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Working for the Federal government, our 401k is called the Thrift Savings Plan (TSP). We max out our contributions each year. As a means of bridging down payment gaps, we utilized a little-known option – the TSP loan.

Per TSP.gov, “When you take a loan, you borrow from your contributions to your TSP account. Your loan amount can’t exceed the amount of your own contributions and earnings from those contributions. Also, you cannot borrow from contributions or earnings you get from your agency or service.” There are two loan options: general purpose and real estate. There are different requirements to meet for each type of loan.

First, here are some items to consider in the decision-making. While these rules pertain specifically to the 401k program provided to Federal employees, TSP, your employer’s 401k service provider should have a similar program for taking a loan from your account and rules associated with paying that loan back.

  • You have to begin making loan payments immediately after your draw down. A general purpose loan must be repaid within 5 years, and a primary residence real estate loan must be repaid within 30 years but you have control over the amount of each payment, as long as the amortization keeps the repayment within the required period. 
  • You pay interest on the loan, which is set at the ‘G Fund’ rate. According to the TSP website, the interest rate is 0.875% as of 1/17/2021. This interest payment is paid into your TSP account.
  • There is a loan fee of $50. 
  • You must be currently employed by the government to take the loan, since repayment is processed through payroll deductions, and if separating from the government you must repay the loan in full within 60 days of separation.

The common talking point working against using a 401k loan is that you need to weigh the loss of compound growth on the balance of your TSP against what the loan will gain you. Many financial talking heads will warn you of using your retirement account for immediate, frivolous purchases. But, used appropriately and strategically, Mr. and Mrs. ODA fully believe that 401k loans can open up financial doors much earlier than through more “traditional” means. 

Our first loan was for our primary residence. While Mr. ODA was an excellent saver through college, he expected to buy a house for about half the cost of what a very basic house goes for in Northern Virginia. Our opportunity cost was private mortgage insurance (PMI); did we want to pay PMI (an added cost that a bank adds to your monthly loan payment to mitigate the risk if you don’t bring a 20% down payment to the house purchase) or take out TSP loans to make up the difference for our down payment? Taking out a loan was ‘out of the box’ and seemed controversial. However, paying PMI indefinitely and being subject to the bank’s decision on when PMI could be removed was more concerning. PMI is building the bank’s “pockets,” while the interest on a TSP loan is going back to your TSP account. 

We decided to each take a residential loan from our accounts. I took a $15,000 loan and Mr. ODA took a $25,000 loan. By taking a TSP loan, we were losing out on the earnings of the accrued balance, but the repayment to ourselves of the G-fund rate was a reasonable trade off. Plus, we could put any extra money towards the loan at any time, thereby increasing our TSP balances faster. 

My loan draw was 7/2/2012, and I had it paid off by 3/17/2015. We could have stretched the payment over the full 30 years to fully leverage our money, but at the time, owning rental properties wasn’t on our immediate radar. However, two incentives to pay a TSP loan off faster than a allowed amortization are 1) that you can only have one loan of each kind at a time, and 2) you can’t request a new loan within 60 days after you paid off a TSP loan. Then there’s that opportunity cost; we wanted to get our money back into our tax incentivized account as quickly as possible to get it working for us again. 

Since our experience was positive for these two loans, we kept this option on the table for future transactions. In 2016 and 2017, we purchased 9 rental properties using regular savings from our high savings rate lifestyle and the equity we were able to cash in from the sale of our first primary home. To cover the down payment of the last few purchases, Mr. ODA and I each took a general purpose loan of $50,000, which is the maximum amount for such type of loan. The loan rate at that time was 2.25%, which was a great lending rate back in 2017. We paid my loan off first, fairly aggressively using the cash flow from the rental properties we purchased, knowing that since I would be separating from the government once we had kids it had to be paid sooner than later. Mr. ODA has adjusted the repayment amount per pay check several times since 2017 to meet our cash flow needs. The loan was issued on 9/1/2017 and currently has a balance of $12,370. 

When looking at the opportunity cost comparison for the rental property purchases, we determined that the 4 ways we make money in real estate investing outweighed the likely (and what actually turned out to be very lucrative) gains of the stock market.

  1. Cash Flow – Profit from rent after all expenses are paid.
  2. Principal Pay Down – The amount the tenant essentially pays out of your mortgage payment that goes directly to the equity of the house.
  3. Appreciation – The increasing of property value based on the market.
  4. Tax Advantages – Being able to utilize the tax code in an advantageous fashion as a business owner. 

By carefully evaluating each property to ensure we had near-guarantees of all 4 of these methods working, we thought that the benefits of owning more rentals outweighed the loss of share ownership in our TSP accounts. 

January Financial Update

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There are a lot of updates to share over the next few weeks to fully explain how our net worth changed so drastically in two years. For the time being, here’s a snapshot of this month’s status.

*The original post had IRA at $313,630, but that was double counting an investment account between ‘IRA’ and ‘taxable’ categories. The image above was updated as part of the February financial update to reflect the accurate January IRA total.

As a quick summary from where we left off, Mrs. ODA’s 401k loan and that 0% interest credit card were paid off. However, we have a new 0% credit card that now has a $5,000 balance that will be paid off in the next month. One of the investment properties was refinanced, which included a cash out option, increasing the mortgage balance. We purchased two new properties in September 2019.

These updates will occur around the 15th of every month. The investment properties’ mortgages are paid on the 10th of each month, so the majority of changes in our finances occur at this time. Future updates will include spending categories as well.

Health Insurance EOBs

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I’m back to discuss this topic. It all comes down to “protect your money.” You need to pay attention to what you’re being billed for before you pay the bill. I’ll just throw out there that I think I had to make a call to correct an Explanation of Benefits (EOB) twice when I had Blue Cross, but it’s nearly every claim with our current insurance.

I had a minor outpatient surgical procedure in March 2025. The pre-op appointments started in January. That’s important because we have a deductible. I don’t trust this company’s calculation of our deductible, so I was paying very close attention to the EOBs for the first few months of the year.

The number of times that I have been sent to collections on a health balance due to their inability to process things correctly is pretty annoying. Every single time, it’s been because of their processes and the lack of insurance communication. Every single time, I’ve been on top of communicating with them to let them know what’s going on with insurance and received assurance that they had everything under control. Then I find out that I’ve been sent to collections.

In this instance, my insurance was really struggling for the first 2-3 months of the year. They had a data breach that screwed up so much of the processing and everything was delayed. I had multiple appointments in January and March (which was also surgery). There were so many insurance delays in processing that the doctors office sent me my statement dated June 16th. In their infinite wisdom, they counted the date of service as the time that I should have paid instead of the time that they received the EOB, and since the date of service was January, I got sent straight to collections. Wonderful.

I can’t stand that they tell me to check their website for help when I’ve already struggled to get their website to do the basic things it should do. But I spent hours calling these people (and the people they tell me to call because they think they can’t help). I finally got through to someone who could help me and understand what my situation was. It turns out I was in “pre-collections,” so not officially reported yet (on my credit; just that they were going to make an attempt to collect, even though I’d love to actually pay them on time). She let me pay the two EOBs worth of a balance and clear the collection record.

There’s no detailed point here. It’s just simply not to trust the doctor/hospital and insurance company to have your best interest in mind. Don’t assume that the paperwork is going to make its way to you. Pay attention to what’s out there and could be pending and a possible bill owed. But even once a bill gets to you, verify that it was paid by insurance correctly and that the amount you owe is accurate. I’ve seen the doctor’s office bill me for the amount unallowable by insurance. I’ve seen a doctor’s office not apply a payment I had made as a “coinsurance” at time of service, even though I had record. I’ve had doctor’s offices require payment up front of $50, but the actual payment owed ended up being $4.

Protect your money. Pay attention.