The Thrift Savings Plan (TSP) is the largest retirement savings choice for federal employees in the US. 

The number of active TSP users is 7 million. 

More than 100,000 TSP participants are millionaires. 

It is the world’s largest contribution or investment plan. 

More than 4 million TSP account holders are actively serving the federal government. 

TSP beneficiaries are nominees who get the benefits and proceedings from the investment account once the primary account holder dies. 

Designating a beneficiary benefits federal employees in several ways. The TSP account allows designating up to 20 people as beneficiaries. 

• It ensures asset distributions based on the participant’s will. 
• Safeguards the physical and intellectual interests of federal employees and their beneficiaries. 
• Eliminates chances of legal disputes. 
• Assures death benefit distributions for the beneficiaries in case of the account holder’s death. 

This blog will discuss the best strategies to designate a beneficiary for the thrift savings plan account for federal employees. 

Navigate the benefits of adding TSP account beneficiaries in retirement planning for federal employees – 

• Ensures intended asset allocation to preferred beneficiaries.
• This helps to avoid the time-consuming probate process and ensures direct transfer to beneficiaries after the account holder passes away. 
• Federal laws assign the spouse of a federal employee as the default beneficiary for the TSP account. This helps to ensure the legal protection of the spouse’s rights unless the account holder specifies a change in beneficiary designation. 
• Regularly review the terms and conditions for beneficiary designation to ensure there are no disputes due to changes in life such as divorces, remarriages, childbirth, or death of an assigned beneficiary. 
• Allows to assign a beneficiary other than the general hierarchy of the TSP beneficiary order of precedence. 
• Offers financial security to dependents such as minors or aging parents. It secures the dependent’s future. 
• Allows TSP distribution options for funds to more than one intended beneficiary of the federal employee. 
• Avoids legal disputes between family members of federal employees regarding the TSP funds. 

Read More: Overview of Universal Life Insurance for Federal Employees

A TSP account beneficiary is the legal entity (individual or organization) that receives the account money in case of the account holder’s death. 

The Federal Retirement Thrift Investment Board ensures the appropriate designation of beneficiaries and distributes the money based on the designation. 

Beneficiaries for TSP Account

Some of the options for federal employees to choose a beneficiary include – 

• Spouse 
• Children 
• Parents 
• Appointed estate planning administrator 
• Account holder predecessors as per the state laws 

A spouse beneficiary can continue investment and fund withdrawal from the TSP account. However, non-spouse beneficiaries can only withdraw money from this retirement savings account.

Types of Beneficiaries for TSP

2 types of categories are appointed for TSP account beneficiaries based on their relationship with the federal employee. These are – 

• Spousal beneficiary – Only the legally married partner of the federal employee can act as the TSP beneficiary who is allowed to invest and withdraw from this type of account. In case of remarriage, the spouse changes. Therefore, it is mandatory to assign a new beneficiary for the account manually. However, in case a spouse dies, the option for spousal beneficiaries is removed. 
• Non-spousal beneficiary – This includes children, parents, and other dependents of federal employees. Furthermore, trusts, organizations, legal entities, and the estate administrator can also act as non-spousal beneficiaries. However, it is mandatory to designate these beneficiaries manually. 

There are two other categories for designating a TSP beneficiary and these are – 

• Primary beneficiary – The spouse is always the primary beneficiary as per the government rules in case a federal employee is married. However, the federal employee can change the primary beneficiary into any other individual, trust, or corporation of their choice.
• Contingent beneficiary – It is possible to appoint a contingent beneficiary for each primary beneficiary. For example, if a federal employee has named 2 primary beneficiaries, they can designate 2 contingent beneficiaries for each primary candidate. However, it is not possible to designate a contingent beneficiary for another secondary beneficiary.

Legal Factors

Some of the legal considerations that help to preserve the interests of the TSP account beneficiaries include – 

• Court orders, separation agreements, wills, and property settlement agreements cannot overrule the federal employee’s choice of primary beneficiary. 
• Mandatory to update beneficiaries in case of changing life events such as separation or death. 
• The TSP account proceedings are distributed as per the legal order of precedence in case the account holder does not designate a beneficiary. 
• It is important to update the address and designation of the beneficiary to determine if they fall into the spousal, non-spousal, primary, or contingent categories. 

Find out the method to designate beneficiaries for your TSP account – 

Sign In To The TSP Online Account

Visit the official government website for TSP and log into the account. Enter the username and password. Account holders need to verify their identity as well. Hover to the beneficiary designation section on the official website. 

Fill Up The TSP Beneficiary Form

The thrift savings plan beneficiary designationTSP-3 form is created to designate a beneficiary for the thrift savings plan account. Federal employees have to fill up every section with appropriate credentials including the full name, birth date, address, and social security number. Furthermore, it is pivotal to provide the business details in case the beneficiary is a trust or corporation. 

Review and Submit the Form

Federal employees need to recheck the information for every section in the TSP-3 form. Once the review is completed, participants can submit the form online. 

Federal employees should follow the specific rules before assigning a beneficiary for the TSP account – 

• It is possible to update TSP beneficiary information online. 
• The beneficiaries’ details such as name, social security number, and birthdate are equally important. 
• No court order or wills can overrule the beneficiary appointed by the federal employee. 
• Start with a new form in case of any mistake in the filled-out form as altered forms are rejected. 
• A separate form called TSP-U-3 is provided to uniformed service members for beneficiary designation.

Read More: Retirement Planning Made Simple for California Federal Employees

Update Latest Beneficiary Information

Update the latest information on beneficiaries. This helps to evade complications related to life event adjustments such as divorces, childbirth, or the death of a beneficiary. This assures swift TSP fund distributions in case of the account holder’s death. The name of the new beneficiary, their social security number, and the latest address will avoid family disputes at the time of distribution. 

Use Full & Specific Information

Correctly specify the number and categories of beneficiaries you appoint for the TSP account. This will prevent confusion and family disputes in case the primary account holder passes away. Moreover, this ensures beneficiaries get the intended distributions. Furthermore, specify the relationships and full legal names of the beneficiary. 

Consider Tax Rules

Connect with a financial advisor for federal employees and understand the tax implications for TSP beneficiaries. The type of TSP account plays a crucial role in determining the tax implications. Some of these are – 

• Tax is deducted from traditional TSP accounts when beneficiaries contribute or take distributions.
• Beneficiaries can get tax-free distributions from ROTH TSP accounts. However, conditions apply where the federal employee needs to make their first contribution 5 years before the beneficiary makes such a withdrawal. 
• Tax is deducted when a beneficiary opts for distribution after the primary account holder’s death. 
• Spousal beneficiaries can roll over their traditional and ROTH TSP accounts into eligible individual retirement (IRA) accounts such as the 401k plan to prevent tax deductions during withdrawal. 

Keep Beneficiaries Updated

All TSP account beneficiaries should have knowledge about how to access the money from the account. Failing to update the appointed beneficiaries regarding the TSP account will lead to confusion. Moreover, the federal employee determines how the distributions are paid to a beneficiary. Inform them if they are eligible to get monthly or annual installments or if they will get partial or total distributions. 

Some common mistakes to avoid while TSP beneficiary designation are – 

• Do not forget to designate a beneficiary for the TSP account as otherwise it may be directed to an unintended person based on the default order of prevalence. 
• Failure to update the latest beneficiary information can result in fund transfers to unintended or expired beneficiaries. 
• Do not ignore the rights of the spouse for retirement accounts. 

Read More: Retirement Planning for Texas Federal Employees: Expert Guidance to Secure Your Future

Designating beneficiaries for the TSP account ensures the financial and future security of your loved ones. 

Connect with leading retirement advisors at PSR Assurance to find out the best strategies to designate a TSP account beneficiary. Get promising financial help for federal employees with our top-notch services. 

Help them live a better future even when you are not around.