You may designate one or more beneficiaries to receive your TSP account in the event of your death. A beneficiary can be any person, corporation, trust, or legal entity (including a foundation or charity), or your estate. You may choose one or more beneficiaries without regard to the standard order of precedence described below, and may designate one or more contingent beneficiaries in case the first beneficiary(ies) dies before you do. For those with both traditional and Roth balances, beneficiary designations apply to both.
A will, prenuptial agreement, separation agreement, property settlement agreement, or court order is not valid for the disposition of your TSP account. To name a beneficiary or beneficiaries for your account, submit Form TSP-3, Designation of Beneficiary, to the TSP at the address or fax number on the form. Under rules at 5 CFR 1561 effective May 15, 2017, only one witness is necessary. To be valid, your form must be received by the TSP before your death, and within one year of your having signed it.
If no valid designation of beneficiary form is on file with the TSP, the standard order of precedence described below will apply.
Distributions and Order of Precedence
If there is a court order against your account when you die, the court order must be resolved before any death benefit payments can be made to beneficiaries. If you had a TSP loan outstanding at the time of death, no payment will be made to any beneficiary until the taxable portion of the outstanding loan has been declared a taxable distribution and closed.
The standard order of precedence if you do not designate a beneficiary is: your widow or widower; if none, to your child or children equally, and descendants of deceased children by representation; if none, to your parents equally or the 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.
If there are any changes in your family status (marriage, divorce, birth, death, etc.), you may want to make changes in your beneficiary designation. To change or cancel a previous designation, submit a new Form TSP-3.
For your beneficiaries to receive your account, Form TSP-17, Information Relating to Deceased Participant, must be submitted to the TSP together with a certified copy of your death certificate.
The share of any designated beneficiary who dies before you die will be distributed proportionally among the surviving designated beneficiaries. Your Designation of Beneficiary form will be void if none of the designated beneficiaries is alive at the time of your death. In that case, the standard order of precedence will be followed.
Surviving spouse beneficiaries may keep TSP accounts open as “beneficiary participant accounts” rather than being compelled to take a distribution as with other beneficiaries. Spouse beneficiaries cannot add new money to the accounts or borrow against them. However, they have the same tax advantages and the same fund choice, interfund transfer, beneficiary designation, account transfer, rollover and withdrawal options as other account holders, while subject to the same required minimum distributions. Note: Beneficiary participant accounts will have the same new withdrawal options that will be available to participant accounts effective in September 2019, as described in Section 4 of this chapter. The 2017 law authorizing those new options (P.L. 115-84) made no changes to court ordered payments.
Spouse beneficiaries also may take distributions rather than maintain spouse beneficiary accounts. A taxable payment made directly to the spouse of a deceased participant is subject to 20 percent mandatory federal income tax withholding unless the beneficiary has the TSP transfer the account directly to an individual retirement account or to an eligible employer plan (see Transferring Your TSP Account in Section 4 of this chapter). A spouse beneficiary further can transfer the proceeds of a beneficiary account into an existing TSP account that is in his or her own name by completing Form TSP-90, Withdrawal Request for Beneficiary Participants, within certain restrictions as described on that form (a transfer in the other direction is not allowed). It is advisable to call the ThriftLine to speak with a representative for specific instructions on how to use that form for that purpose, and also to consult a tax expert about potential tax implications and other considerations.
Death benefit payments made from a beneficiary account must be paid directly to the surviving spouse’s own beneficiary or beneficiaries. These payments are subject to certain tax restrictions and cannot be transferred or rolled over into an IRA or eligible employer plan.
Non-spouse beneficiaries must take a distribution. A taxable payment is subject to 20 percent federal income tax withholding unless the beneficiary requests that the TSP transfer all or part of the payment directly to an “inherited” IRA established to accept such a transfer. Inherited IRAs may provide significant tax benefits because the required distributions from the IRA generally can be spread across the lifetime of the beneficiary. The rules are complicated, and there are restrictions. Check with your tax adviser and IRA provider.
Learn more about the TSP in 1105 Media Inc.’s book Your Thrift Savings Plan. Please call (800) 989-3363 for ordering information.