If you’re one of the many current and retired federal employees and retirees living in Virginia, it’s crucial to know how the assets in your Thrift Savings Plan (TSP) are handled after you’re gone.
As with other retirement accounts, you should have designated one or more beneficiaries for your TSP as well as contingent beneficiaries. The rules around contingent beneficiaries changed a few years ago, so it’s important to know when contingent beneficiaries inherit if a primary beneficiary is no longer around.
It’s also crucial to understand that the beneficiary designations you make on your TSP using the designation of beneficiary form override any estate plan documents. That means if you designate one person in your will or trust to inherit your TSP and another on the TSP form, the latter overrides anything in your estate plan. Too often, someone makes a change in their estate plan due to family changes, but neglects to do so with the TSP administrators.
Who inherits your TSP if you don’t designate any beneficiaries?
If you don’t have any living beneficiaries (primary or contingent) designated on your TSP when you pass away, the assets in the plan will be distributed in the following order:
- To your surviving spouse
- If you have no surviving spouse, to your child(ren)
- If there’s no spouse or children, to any surviving parent(s)
If you have no surviving family in these categories, the assets will go to the appointed executor of your estate. If there is none, they would go to the “next of kin who is entitled to the participant’s estate under the laws of the state in which he or she resided at the time of death.”
What documents do TSP beneficiary designations override?
Note that according to the TSP website, “A will, prenuptial agreement, separation agreement, property settlement agreement, or court order will not override either a beneficiary designation or the order of precedence.”
It will be much easier for your loved ones and anyone managing your estate to have up-to-date beneficiaries listed on your TSP. This will help minimize any time your estate has to spend going through the probate process because the assets will pass directly to the beneficiaries.
Current and retired federal employees often have unique estate planning concerns in addition to their TSP. Getting estate planning guidance from a professional who understands those unique concerns can make a big difference in how smoothly your estate is managed after you’re gone.