The TSP will not follow any wishes you express in a will or a trust; they will only follow your designation of beneficiary or the standard order of precedence. Image: William Potter/Shutterstock.com
By: FEDweek StaffWhat happens to the money that is in your Thrift Savings Plan account when you die? It will go to the person you designated as your beneficiary. If you are unsure as to whom your beneficiary is, you can check your TSP account to find out.
What if you didn’t designate anyone as your beneficiary, or the person (or persons) you designated pre-deceased you?
The TSP will follow the standard order of precedence for federal benefits, which is:
· Surviving spouse;
· Child or children in equal shares (this will not include stepchildren unless they have been formally adopted);
· Parents;
· Executor or administrator of your estate;
· Next of kin as determined by the law of intestacy in the state that was your legal residence at the time of your death.
The TSP will not follow any wishes you express in a will or a trust; they will only follow your designation of beneficiary or the standard order of precedence. They will also resolve any court orders and outstanding loans before making any beneficiary payments. Expect 30 to 60 days for the Thrift Board to make any payments to beneficiaries.
What your beneficiary can do with your TSP account depends on their status. If your beneficiary is:
Your federally employed or retired spouse, he/she may roll your TSP account into his/hers, elect an inherited IRA or take the money out.
Your non-federally employed or retired spouse, he/she may take ownership of your TSP account, elect an inherited IRA, or take the money out. If they elect to take ownership of your account, the TSP will create a beneficiary participant account for them. The initial allocation in a beneficiary participant account is in the age appropriate L fund.
A non-spouse may elect an inherited IRA or take the money out. The SECURE Act has limited the “stretch IRA” for almost all non-spouse beneficiaries who now have to totally deplete the account within ten years. In addition, a non-spousal beneficiary might have to take required minimum distributions from your account during the ten-year period.
Note that, when your spousal beneficiary dies, the money left in their beneficiary participant account cannot be passed on to another beneficiary; neither can it be rolled over into another tax deferred account. This might argue for your beneficiary to roll it into an IRA of their own, where they can pass on the balance to a beneficiary of their own choosing.
The TSP has two excellent booklets, Death Benefits and Your TSP Account: A Guide for Beneficiary Participants in the “forms and resources” section to the TSP website.
Did you know?
If you choose to withdraw your TSP account based on the life-expectancy table, the total dollar amount of your payment for the year will approximate your required minimum distribution (RMD). Every December the TSP checks to see if your payments meet your RMD, and if they didn’t, they will send you a supplemental payment before the end of the year, so that you will meet your RMD.
askFW: TSP Spouse and Survivor Rights
askFW: FERS Survivor Benefits
The Process of Retiring: Check Your Agency’s Work
TSP Stock Funds Post Returns to Be Thankful For in November
Late-Year Retirement Considerations: 2022 Has Advantages for Feds
TSP: Don’t Spend it All in Once Place
OPM to Close FLTCIP to New Enrollments Starting December 19
The Best Date for Feds to Retire in 2022
Pay Gap Increases; New, Expanded Localities Again Recommended
Looking Forward to a Lump-sum Payment for Unused Annual Leave
FERS Retirement Planning Bundle: 2022 FERS Guide & TSP Handbook
