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TSP & Death Benefits

Key Points:

  • How to set up TSP Beneficiary Designations

  • TSP Order of Precedence

  • How your designees can get their death benefits

For many people, talking about death can be a very uncomfortable subject. As difficult as it is to think about your death, it is important to take steps to prepare for what happens after you die. Doing so will help your family’s mourning period be just a little easier.


Setting Up Beneficiary Designations


As with any financial account, you’ll want to set up beneficiaries for your TSP. Simply put, if you have ideas and wishes about what happens to your money after you die, setting up beneficiary designations is a must. You can choose family members, friends, and neighbors, or really anyone you’d like to be a beneficiary on your account. You can even set up contingent beneficiaries, so you have a “Plan B.” If one of primary beneficiaries passes away before you, then whoever you’ve added at the contingent designee will get their shares. If there’s a charity, corporation or foundation that you’re particularly fond of, you can add them as one of your designees too.


Be sure to review your designations often, since TSP is required by law to pay out directly as you have indicated on your forms. For example, you may have a former spouse listed as the designee of your account, but since creating that form, you’ve gotten divorced and remarried. If you didn’t change your forms, your ex-spouse will still have rights to that money, legally. Set up reminders to review account beneficiaries regularly and with every major life change.


It’s easy to add and change beneficiaries of your TSP account. Simply fill out and submit Form TSP-3. You can download this form by visiting tsp.gov. A witness signature is required for your form to be valid. You’ll also need to provide a Social Security Number (or EINs) for each beneficiary. Once your form is received and processed, you will receive a letter of confirmation. If your form contains any errors, you will also receive a letter instructing you on what needs to be fixed to make sure your designations are processed correctly.


What Happens If I don’t Designate a Beneficiary?

The TSP administration has created a standard order of precedence that will be followed if you die without beneficiary designations on your TSP account. The order goes as follows:

  1. To your spouse

  2. If you were unmarried: Any children will split the money evenly

  3. In the case of no spouse or children: To your Parents

  4. If none of the above: The executor of your estate

  5. If none of the above: Your next of kin, determined by individual state laws


Other things to note

  • Any court orders against your account will be paid before any death benefit payments can be made.

  • If you have an outstanding TSP loan at the time of your death, this will need to be settled before any death benefits payments are made. Your estate or survivors cannot repay the loan; the outstanding loan amount will be declared a taxable distribution.

  • If your beneficiary is your spouse, the TSP will establish a “beneficiary participant account” in his/her own name.

  • A beneficiary who is not a spouse cannot maintain a TSP account.

  • Under the order of precedence, “child” means biological and/or legally adopted children. Stepchildren and foster children will not be included, unless they’re legally adopted, or they’re added as a beneficiary using Form TSP-3.

  • The share of any beneficiary who dies before you will be distributed among other beneficiaries, unless you set up a contingent beneficiary. If you only had one beneficiary designee and they die before you, the Order of Precedence will come into play.


Distributions of Death Benefits

Death benefits must be paid directly to your beneficiaries. There are differences between how Spouses and Non-Spouses can receive distributions. For full details, check out the TSP Booklet “Death Benefits: Information for Participants and Beneficiaries.” Remember, death benefits are considered taxable income (unless you had a Roth TSP), so the beneficiaries may want to talk to a tax professional to see how the payments will affect them.

In order for your beneficiaries to receive account payouts, they must submit a Form TSP-17 and an official copy of the death certificate to the TSP administration. Once the TSP processes this information, they will contact your beneficiaries with additional instructions.


Action Steps:

Publish Date: March 2, 2020 © Tangerine, Inc. All rights reserved. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular individual or circumstance. This article is not intended to be a client-specific analysis or recommendation. Do not use this article as the sole basis for any financial decisions. Consider all relevant information. Information should not be considered as tax or legal advice. You should consult with your tax advisor and/or attorney regarding your individual circumstances.


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