Estate planning generally involves more than putting documents in place like advance directives, powers of attorney, wills and trusts. If you have accounts and insurance policies that allow you to designate one or more beneficiaries, this is how you pass on these assets after you’re gone.
Many people have a large portion of their assets in some type of retirement account. If you’re a current or former federal employee, these assets may be in a Thrift Savings Plan (TSP). It’s crucial to designate one or more beneficiaries for your TSP.
What happens if you don’t list beneficiaries?
If you don’t have any beneficiaries listed on your TSP when you pass away, the assets will be disbursed to surviving relatives in a specific order. Spouses and children come first, if there are any. If there aren’t, parents and then more distant relatives can inherit the assets.
This might not be what you want. You may prefer to have a close friend or even a non-profit organization inherit all or part of your TSP. You may want your revocable living trust to be the beneficiary.
Note that, as with beneficiary designations for other types of accounts, the designation must be made on the account for the administrator to follow it. Listing your TSP beneficiaries in your will alone isn’t enough. The TSP specifies that “your beneficiary designation must be on file with us at the time of your death. We cannot honor a will or any other document.” If your will and your TSP state two different things, what’s on the TSP takes precedence.
Can all beneficiaries keep an inherited TSP?
The plan administrator can establish a beneficiary participant account for a surviving spouse who inherits a TSP. However, non-spousal beneficiaries can only keep an inherited TSP temporarily. They will need to transfer the assets to another retirement account or take a distribution of them.
If you’re a current or former federal employee with a TSP, having experienced estate planning guidance can help you deal with this and other unique needs you may have. This can help you ensure that your loved ones are taken care of after you’re gone.