Thrift Savings Plan (TSP)

A participant designates beneficiaries online by logging in to My Account at tsp.gov. The paper Form TSP-3 (Designation of Beneficiary) is obsolete under TSP Bulletin 23-2. A will, prenuptial agreement, separation agreement, property settlement agreement, or court order will not override a TSP beneficiary designation or the order of precedence. Only the designation on file with the TSP at the time of death controls -- including where the participant designated a spouse and later separated, divorced, or remarried without filing a new designation.

If no beneficiary designation is on file, the TSP pays the account according to the statutory order of precedence under 5 U.S.C. 8424(d) and 5 CFR 1651.2(a): the participant's spouse; if none, the child or children equally, with a deceased child's share divided equally among that child's descendants; if none, the parents equally or the surviving parent; if none, the appointed executor or administrator of the estate; if none, the next of kin entitled to the estate under the law of the state where the participant resided at death. A stepchild the participant never adopted does not count as a child, and stepparents who have not adopted the participant do not count as parents. The reporter is asked to complete an Unidentified Beneficiary Affidavit online through the TSP Life Events Hub.

When a surviving spouse inherits TSP funds and their share is $200 or more, the TSP automatically creates a Beneficiary Participant Account (BPA) in the spouse's name. If the share is less than $200, it is paid out immediately by check. Moving the money into a BPA is not a taxable transaction, and the balance stays invested as it was in the participant's account except that any mutual fund window money is reinvested in TSP funds. The spouse cannot contribute to or roll money into the BPA but can take single payments, installments, or a TSP life annuity, and can roll an eligible distribution over to a traditional IRA, Roth IRA, or eligible employer plan -- including their own civilian or uniformed services TSP account. If the BPA holder later dies, the new beneficiaries cannot keep the account in the TSP and the death benefit payment cannot be rolled over into any IRA or plan.

No. Non-spouse beneficiaries receive a temporary TSP account and have 90 days to request payment. If no action is taken within 90 days, the TSP automatically sends the payment on the 90th day or the next business day. The only rollover-type option is a direct rollover to an inherited IRA -- an account opened specifically to hold money inherited from a plan like the TSP. A TSP death benefit paid directly to a non-spouse beneficiary may not be rolled over into an IRA or plan afterward, so the inherited-IRA election has to be made before the payment is issued.

Traditional (pre-tax) money in a death benefit payment is taxable; Roth contributions are not, and Roth earnings are tax-free if five years have passed since January 1 of the year of the participant's first Roth contribution. Payments are disbursed pro rata from the traditional and Roth balances. For a payment from a civilian or uniformed services account directly to an individual non-spouse beneficiary, the TSP must withhold 20% of the taxable portion not directly rolled over to an inherited IRA; the beneficiary may elect more than 20% but cannot waive or reduce it. For a payment to an estate, corporation, or other legal entity -- and for any death benefit paid from a beneficiary participant account -- the withholding is 10%, the payment is fully taxable in the year distributed, and it cannot be rolled over. A spouse beneficiary avoids withholding entirely by keeping the money in a beneficiary participant account. Rolling traditional money to a Roth IRA is taxable. Distributions are reported on IRS Form 1099-R.

Not inside the TSP. A non-spouse beneficiary cannot keep a TSP account at all -- the temporary account is paid out within 90 days, so there is nothing left in the plan to stretch over ten years. The 10-year rule matters only if the beneficiary directs the payment into an inherited IRA: under 26 U.S.C. 401(a)(9)(H) the inherited balance generally must be distributed within 10 years of the participant's death. Eligible designated beneficiaries are excepted -- a surviving spouse, a minor child of the participant, a disabled or chronically ill individual, and anyone not more than 10 years younger than the participant (26 U.S.C. 401(a)(9)(E)(ii)). Inherited-IRA rules are complicated; the TSP itself recommends discussing a rollover with a tax advisor or IRA provider first.

Yes. A spouse beneficiary participant must take RMDs from the beneficiary participant account. Unlike a living participant's own account, the RMD calculation for a beneficiary participant account includes the entire balance -- traditional and Roth -- and any distribution counts toward satisfying it; SECURE 2.0's removal of Roth balances from the RMD calculation applies to participants, not to spouse beneficiary participant accounts. TSP's RMD ages are 73 for participants born before 1960 and 75 for those born in 1960 or later. For the year of the participant's death the TSP calculates the RMD using the deceased participant's age and the IRS Uniform Lifetime Table; in later years it uses the beneficiary participant's own age and the IRS Single Life Expectancy Table. SECURE 2.0 reduced the excise tax on a missed RMD from 50% to 25%, and to 10% if the conditions of Internal Revenue Code section 4974(e) are met and the RMD is corrected within two years.

No. A will, prenuptial agreement, separation agreement, property settlement agreement, or court order will not override either a TSP beneficiary designation or the statutory order of precedence. The TSP pays the account strictly according to the designation on file (made online through My Account), or the order of precedence if no designation exists.