In light of the fact that the TSP is a large portion of the retirement income of most federal employees, and due to my recent articles on survivor benefits, many readers have asked me about what happens to your TSP contributions if you die with "money in the pot". (See Should a Survivor Annuity Be Part of Your Retirement Planning? and Should You Elect a Survivor Benefit for Your Spouse?)
What follows is true whether you are still employed, or whether you have retired.
If you die with money in your TSP account, your TSP-3, Designation of Beneficiary, will govern who receives your money. If you have not filed a TSP-3, or if your listed beneficiary (or beneficiaries) have pre-deceased you, your contributions will be distributed according to the standard order of precedence for federal benefits. The order of precedence is:
- Valid court order
- Surviving spouse
- Children (per stirpes)
- Parents
- Executor or administrator of your estate
- Next of kin based on the laws of the state in which you resided at the time of your death
The Thrift Savings Plan also has rules that govern how your beneficiary can receive the money from your TSP account. The rules vary depending on who is your beneficiary.
- If your beneficiary is your spouse who is a federal employee or a retired federal employee, they can have your TSP account merged with theirs.
- If your beneficiary is your spouse who is not a federal employee or a retired federal employee, they may leave the money in the TSP.
- If your beneficiary is not your spouse, they can transfer the account to an inherited IRA
In all of the above cases, the beneficiary can also cash out the TSP account if they choose to do so.
The TSP brochure "Death Benefits Information for Participants and Beneficiaries" has more in-depth information and can be accessed on the TSP Website. Also on the TSP website is an informative tax notice, "Important Tax Information About TSP Death Benefit Payments".
Please note that the above rules do not apply to any money you have used to purchase a TSP annuity upon retirement. With a TSP annuity, unless you elect a cash refund or ten-year certain feature, there is no refund; MetLife keeps your money.
If you elect the cash refund feature for your TSP annuity and die before receiving an amount equal to the purchase price of the annuity, your beneficiary will receive the remaining balance of your original purchase price.
If you have already received an amount equal to or greater than your purchase price at the time of your death, there is nothing to be refunded. With the ten-year certain feature (available only on single-life annuities), if you die before having received payments for ten years, your beneficiary will receive payments for the remainder of the ten year period.
