Understanding which federal benefits can transfer to your spouse, children or parents is essential for effective estate planning. Image: ZozerEblola/Shutterstock.com
By: Dallen HawsAs a federal employee, you’ve worked hard to earn benefits that provide financial security for you and your family. But what happens to these benefits when you pass away? Can your spouse or children or parents inherit them? Understanding how federal benefits transfer to loved ones is crucial for estate planning. Below, we’ll discuss how Thrift Savings Plan (TSP), Federal Employees Retirement System (FERS) Pension, Federal Employees Health Benefits (FEHB), Dental/Vision benefits, and the FERS Supplement impact your heirs.
Thrift Savings Plan (TSP)
Who Can Inherit Your TSP?
Your TSP can be left to anyone you designate as a beneficiary. This includes your spouse, children, parents, or even a charity. If you don’t designate a beneficiary, your TSP will follow a default order of precedence:
To your spouse
If none, to your child or children equally, with the share due any deceased child divided equally among that child’s descendants
If none, to your parents equally or to your surviving parent
If none, to the appointed executor or administrator of your estate
If none, to your next of kin who is entitled to your estate under the laws of the state in which you resided at the time of your death
What Happens When a Spouse Inherits TSP?
A spouse is the only beneficiary who can transfer inherited TSP funds into their own TSP account. This allows them to defer taxes and maintain the investment within the TSP. Alternatively, they can roll the funds into an IRA, which also preserves the tax advantages.
What Happens When a Non-Spouse Inherits TSP?
Children, parents, or other beneficiaries cannot maintain the funds in the TSP. Instead, they have two options:
Withdraw the money, which results in immediate taxation on traditional TSP funds.
Roll the funds into an inherited IRA, which defers taxes until withdrawals begin.
FERS Pension
Can Children or Parents Inherit a FERS Pension?
Unlike TSP, FERS pension benefits do not transfer to children or parents. Upon your passing, a pension benefit can only continue for a surviving spouse if you elected a survivor benefit at retirement.
Exception for Minor Children: If you have minor children, they may receive a small survivor benefit until they reach adulthood. However, this does not continue for adult children or parents.
Federal Employees Health Benefits (FEHB)
Can Your Children or Parents Keep Your FEHB Coverage?
FEHB coverage can continue for family members, but only under specific conditions:
Spouses: Your spouse can continue FEHB coverage only if they are eligible for survivor benefits.
Children: Eligible dependent children (under age 26) can maintain coverage if they were covered at the time of your passing.
Parents: Parents cannot inherit or continue FEHB coverage under any circumstances.
Dental and Vision Insurance (FEDVIP)
Can Children or Parents Inherit Dental/Vision Benefits?
Dental and vision insurance under FEDVIP does not have the same survivor rules as FEHB. Once the primary enrollee (you) passes away, the coverage ends unless:
● A spouse is enrolled in a self plus one or family plan. In this case, the spouse can continue coverage by assuming the premium payments.
● Children cannot continue the plan beyond age 22 unless they qualify as dependents due to disability.
● Parents are not eligible to inherit coverage under any circumstances.
FERS Supplement
Can Your Family Receive Your FERS Supplement?
The FERS Supplement is an additional benefit paid to retirees who retire with a full retirement before age 62. However, it does not transfer to a spouse, children, or parents upon death. If you pass away while receiving the supplement, it stops immediately.
Steps to Ensure Your Benefits Go to the Right People
Update Your Beneficiaries – Ensure your TSP, life insurance, and other accounts have updated beneficiary designations.
Elect Survivor Benefits – If you want your spouse to retain FEHB and a portion of your pension, elect a survivor annuity at retirement.
Consider Estate Planning – A will, power of attorney, and trust (if needed) can help manage how assets and benefits pass to your heirs.
Final Thoughts
Understanding which federal benefits can transfer to your spouse, children or parents is essential for effective estate planning. While TSP can be inherited by anyone you choose, FERS pensions and FEHB have strict rules that mainly benefit spouses. Dental, vision, and the FERS Supplement generally do not transfer to heirs. By making informed decisions today, you can ensure your loved ones are financially secure after you’re gone.
Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTube channel all about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.
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