Thrift Savings Plan (TSP)

as soon as possible; no statute sets a deadline¹

within 90 days of the identification of the beneficiaries; The TSP pays the full balance as a lump sum on the 90th day or the next business day, which ends the option to move it to an inherited IRA.²

If the participant had a pending withdrawal request, annuity purchase or loan disbursement at death, the TSP cancels it and the funds are paid as part of the death benefit.⁴

The spouse cannot contribute to or roll money into a Beneficiary Participant Account but can take single payments, installments or a TSP life annuity. An eligible distribution can be rolled over to a traditional IRA, Roth IRA or eligible employer plan, including their own civilian or uniformed services TSP account.^{3, 4}

If the holder of a Beneficiary Participant Account 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.¹

A spouse beneficiary participant must take required minimum distributions from the account. The calculation includes the entire balance, traditional and Roth, and any distribution counts toward it.⁵

SECURE 2.0's removal of Roth balances from the RMD calculation applies to participants, not to spouse beneficiary participant accounts. The TSP's RMD ages are 73 for participants born before 1960 and 75 for those born in 1960 or later.⁵

For the year of the participant's death, the TSP calculates the RMD from the 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.⁶

Anyone can report a participant's death. If the participant was still employed, the employing agency or uniformed service also notifies the TSP; for a retired or separated participant, the family or beneficiary reports the death.⁷

The Life Events Hub is a secure portal, open 24/7, for reporting a death, uploading documents and tracking the report. Whoever creates the account becomes the reporter and is the only person with access to the claim.⁸

The TSP cannot process a death benefits claim without a legible copy of the certified death certificate.⁷

There is no TSP death form. Form TSP-17 (deceased-participant information), Form TSP-81 (non-spouse death benefit election) and Form TSP-3 (designation of beneficiary) are obsolete under Bulletin 23-2.⁹

Each identified beneficiary receives a Confirmation of Beneficiary Asset Transfer notice by mail once the claim is processed.¹

A non-spouse beneficiary's only rollover option is a direct rollover to an inherited IRA, an account opened to hold money inherited from a plan like the TSP. A payment made directly to the beneficiary cannot be rolled over afterward, so the election is made before the payment is issued.²

A participant designates beneficiaries online in My Account; the paper Form TSP-3 is obsolete. After a death the TSP reviews the designation on file to identify the beneficiaries, and pays by the order of precedence where there is none.^{10, 9}

A will, prenuptial agreement, separation agreement, property settlement agreement or court order does not override a TSP designation or the order of precedence. Only the designation on file at death controls, even after a separation, divorce or remarriage with no new designation.¹

With no designation on file, the account goes to the spouse; then the children equally, a deceased child's share divided among that child's descendants; then the parents equally or the surviving parent; then the estate's executor or administrator; then next of kin under the law of the state where the participant lived.^{11, 12, 4}

In the order of precedence, a stepchild the participant never adopted is not a child, and a stepparent who has not adopted the participant is not a parent.^{11, 12, 4}

Traditional money in a death benefit is taxable; Roth contributions are not, and Roth earnings are tax-free once five years have passed since January 1 of the year of the first Roth contribution. Each payment comes pro rata from the traditional and Roth balances and every fund the account holds.¹

A spouse beneficiary avoids withholding by keeping the money in a beneficiary participant account. Rolling traditional money to a Roth IRA is taxable, and distributions are reported on IRS Form 1099-R.¹

For a payment 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.^{6, 2}

A payment to an estate, corporation or other legal entity, and any death benefit paid from a beneficiary participant account, has 10% withholding, is fully taxable in the year paid and cannot be rolled over.^{6, 2}

The 10-year rule does not apply inside the TSP, since a non-spouse beneficiary's temporary account is paid out within 90 days. It applies only to a payment moved into an inherited IRA, where the balance generally must be distributed within 10 years of the participant's death.¹³

Eligible designated beneficiaries are excepted from the 10-year rule: 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.¹³

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.⁵

The TSP recommends discussing a rollover to an inherited IRA with a tax advisor or IRA provider first.¹