Examine This Aspect of Your Thrift Savings Plan

Aug 13, 2018 | Miscellaneous

Federal employees enjoy one of the most complete retirement systems in the country, helping you to better prepare for retirement. The downside of having such a complex system is that you might not feel familiar with all of the ins and outs of its procedures and regulations.

With regard to your Thrift Savings Plan, there is something very important that you might not know. Yet, this information could be extremely important one day: The TSP does not honor statements included in wills, court orders, trust documents, or other legal documents that you have prepared with regard to estate planning. Your intended beneficiaries will only receive the money in your TSP if you have filed a specific form before your death. Form TSP-3 allows you to state your wishes with regard to inheritance of your account.

No, this does not mean that your funds are forfeited if you pass away without making this designation! It simply means that plan administrators will distribute the funds according to default guidelines for inheritance, regardless of what your Will or other documents might specify. This default order of inheritance is as follows:

  • Your spouse (assuming you have one)
  • Your children, if you don’t have a spouse or if your spouse is deceased
  • Your parents, in absence of a spouse or children
  • The appointed executor of your estate
  • If you haven’t appointed an executor of your estate, then your state’s default rules of inheritance will apply as your estate passes through probate court

So, what if you’re happy with that order? Do you still need to file Form TSP-3?

Actually, yes, it is still a good idea. Let’s assume that you’re fine with the idea of your spouse receiving the money. What happens if you divorce at some point in the future, or your spouse passes away before you? Are you still okay with the order of inheritance as listed above? At any point that order might not align with your wishes, so it’s best to state them clearly and according to proper procedure.

Form TSP-3 allows you to designate a beneficiary and a back-up beneficiary, so that you can be sure your wishes are followed in the event of your death. For more information on this issue, or anything else relating to your TSP, give us a call and we’ll be happy to help.

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