It is not uncommon for an employee to separate from the public service with an overdue loan from the SWT. This article discusses what will happen to this loan when you retire or leave the federal service.
You are required to liquidate an outstanding SWT loan within 90 days of separation. Once the SWT service office is informed of your separation, it will send you instructions on closing your loan. In these instructions, they will tell you how to close it and tell you when it should be closed. You will not be able to withdraw from your SWT account until the loan is closed.
You can cancel your loan by:
If you make a taxable distribution, you will be liable for federal income tax (possibly state income tax) on the outstanding balance of the loan. IRS will be informed of the distribution. Federal income tax will be at your rate for ordinary income. If you separate before the year you turn 55, you will also be liable for the 10% early withdrawal penalty.
If you have a Roth balance in your SWT account, the portion of your loan associated with these Roth contributions will not be subject to federal income tax. However, all Roth’s income that is not considered qualified will be subject to federal income tax. In order for Roth’s earnings to qualify as qualified, you must have your Roth balance for at least five years and you must be 59 years of age or older.
Agencies may ask John Grobe, or another qualified Federal Career Expert instructor, to arrange a retirement or transition seminar for their employees. FCE Instructors are not financial advisors and will not sell or recommend financial products to group participants. Agency Benefits Officers can contact John Grobe at (protected email) to discuss schedules and costs.