What does the Thrift Savings Plan have in common with most other federal benefits? The fact that, after your death, payments will not be made in accordance with a will or a trust. In fact, any federal benefit that has a beneficiary form associated with it will not be distributed in accordance with a will or trust.
In addition to the TSP, beneficiary forms govern Federal Employees Group Life Insurance (FEGLI), CSRS or FERS retirement contributions and unpaid compensation. If there is no beneficiary form, or if the person/persons named on the beneficiary form have pre-deceased the federal employee/retiree, there is a standard order of precedence for federal benefits. In the standard order, benefits would first go to the surviving spouse; followed by child or children in equal shares (per stirpes), (does not include stepchildren unless formally adopted); then parents; then the court appointed executor or administrator of the estate; and last the next of kin based on the law of intestacy in the state that was your legal residence on the date of your death.
But wait! I’m sure that you’re not surprised that there is an of exception to the standard order. In the case of FEGLI, a valid court order (e.g., divorce, etc.) would supersede not only the standard order of precedence, but also a named beneficiary.
If you want the TSP to distribute your account after your death to individuals or organizations that you have identified in a trust, you can always make the trust a beneficiary of your Thrift Savings Plan. If you choose to do so, make sure you consult with an attorney who is familiar with the law as it applies to trusts and retirement plans. Generally, if you want to leave your Thrift Savings Plan account to individuals, the best way to do it is by naming those individuals on the TSP-3.
Currently, if your named beneficiary is your federal spouse (employed or retired), he or she can roll your TSP account into theirs. If your named beneficiary is your non-federal spouse, he or she will be given a “beneficiary participant account” and will be able to keep their money in the Thrift Savings Plan. If your named beneficiary is a non-spouse, he or she cannot leave the money in the TSP, but they can elect an “inherited IRA” which under certain circumstances will allow them to stretch the payments out based on their life expectancy. Due to the SECURE Act, most non-spouse beneficiaries are not allowed to elect inherited IRAs and stretch payments for their life expectancy unless they meet certain exceptions. Without an exception, the account will have to be emptied out in ten years.
When in doubt, consult an attorney or advisor who is familiar with federal benefits. If you’re in the DC area, this should not be too difficult. Further afield you may not find many who understand federal benefits. Consider remote discussions with an expert in your benefits.