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What to know about passing on your TSP assets

On Behalf of | Mar 28, 2024 | Business Formation & Planning

One key step in estate planning doesn’t require putting a legal document in place. It simply involves designating beneficiaries for your retirement accounts. Federal employees can also designate one or more beneficiaries for their Thrift Savings Plan (TSP).

Federal employees can keep their TSP after they leave or retire from federal government employment. That means even if you’re no longer a federal employee, you may still have considerable assets in the plan.

You may choose to list your TSP and other accounts and beneficiaries in your estate plan. However, the assets will be distributed according to your designations on the accounts. That means if you make any changes, it’s important to do that on the accounts. Doing it in your estate plan as well will help avoid confusion. However, if there’s a discrepancy, what’s in the estate plan won’t matter.

What happens if you don’t list any beneficiaries for your TSP?

In that case, the assets will go to your surviving spouse if you have one. It should be noted that only a surviving spouse can transfer the funds into their own TSP, even if they aren’t (or weren’t) a federal employee. Other beneficiaries don’t have that option.

If you don’t have a surviving spouse, your TSP assets will go be distributed among your children. If you have neither a surviving spouse nor children, it will go to your parent(s) if you predecease them. If you have no surviving spouse, children or parents, the assets will go to your executor (if you appointed them prior to your death). 

You can see how this might not be what you intended. For example, if you have a surviving spouse, they would be entitled to all of those assets. They may choose not to share them with any children you may have from another marriage. That can cause some serious family conflict.

You may not even want to leave the assets to a family member. You can designate a non-profit organization to receive them, if you choose.

As noted, there are a number of elements of estate planning that don’t involve wills, trusts and other estate plan documents. Having sound legal guidance can help you leave the legacy you intend to leave.