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TSP

Administered by the Federal Retirement Thrift Investment Board, this defined contribution plan for federal employees has roughly 4,614,874 participants, and over $358 billion in assets under management. Ask your TSP questions and post related topics here.

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trooper  
#1 Posted : Wednesday, February 21, 2018 11:27:31 AM(UTC)

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Looking for some advice here. I am closing in on having to start the minimum withdrawal from TSP. If I die, either before or after I start the minimum withdrawal, will my designated heirs--my children-- get the entire remaining balance of my tsp account? Or are taxes withheld? If taxes are withheld, does anyone know what percentage? And if taxes will be withheld, is there any way to avoid that? Should I move my account elsewhere? Any thoughts would be appreciated. Thanks!
Roger.D  
#2 Posted : Wednesday, February 21, 2018 4:10:48 PM(UTC)
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https://www.tsp.gov/PDF/formspubs/tspbk31.pdf

See page 10 of this brochure. 1/2018 version.

Spouse beneficiaries can keep the money in the TSP.

Non spouse beneficiaries must receive the money. It can by a cash payment, with taxes withheld. Or, rolled into an "inherited" IRA to avoid the immediate tax hit. Taxes will still be owed when the funds are withdrawn.

It appears that "inherited" IRA's have to be set up a certain way. If your children have account with an investment firm, that firm should be able to set things up to avoid the wrath of the IRS. If they don't have an investment firm, I suggest Vanguard or Fidelity.

Good luck in out living your TSP!

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trooper on 2/27/2018(UTC)
someoldguy  
#3 Posted : Friday, February 14, 2020 2:45:46 PM(UTC)
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Thought I would revive this old thread. Have there been any changes to the way "non spouse beneficiaries" receive a TSP distribution?

I heard something about this on the radio... I don't think an IRA has the same limitation. However, with the passage of the SECURE act, an inherited IRA has to be withdrawn completely over ten years. Which is better than all at once like the TSP.

Could be one reason to roll over your TSP to an IRA after you separate.
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Endless Summer  
#4 Posted : Friday, February 14, 2020 3:01:22 PM(UTC)
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Originally Posted by: someoldguy Go to Quoted Post
Thought I would revive this old thread. Have there been any changes to the way "non spouse beneficiaries" receive a TSP distribution?

I heard something about this on the radio... I don't think an IRA has the same limitation. However, with the passage of the SECURE act, an inherited IRA has to be withdrawn completely over ten years. Which is better than all at once like the TSP.

Could be one reason to roll over your TSP to an IRA after you separate.


I urge anyone approaching retirement to invest in a professional, fee-based, independent financial advisor/estate planner, not one that wants to sell you a product such as an in-house fund. The $2k you spend will save you and your heirs ten times that, easily.

I've been through settling the estates of family members and there are so many ways you can trip up that will cost tens of thousands of dollars. As useful as the internet and YouTube are, this is a topic that is too individual to come up with the best plan on your own.
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someoldguy on 2/17/2020(UTC)
someoldguy  
#5 Posted : Monday, February 17, 2020 12:00:17 PM(UTC)
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One item I did find was setting up an inheritance IRA, but apparently this needs to be done correctly. That bit of info tends to support Endless Summer's statement... would hate to set everything up and have my heirs find out I did not do it quite right.

I think now an inherited IRA has to be withdrawn over a ten year period... which is better than a one-time massive charge which is how it would work with a non-spouse inherited TSP account.
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edalder  
#6 Posted : Tuesday, February 18, 2020 3:25:14 PM(UTC)

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I have an inherited IRA also known as a "stretch" IRA. My late father designated my mother as the primary beneficiary and his four children as the alternate benes with equal shares to each, if she predeceased him. Well, she did predecease him. My father's account was not with the TSP, but I am pretty sure that it would worked much the same way if it had been.

The rules in effect at the time (2003) allowed me to stretch my own withdrawals from my share over my life expectancy, which is what I did. It is like a required minimum distribution from regular IRA, expect you CANNOT defer your withdrawals until age 70.5 as you can with your TSP or a regular IRA. You have to start taking them the very next year. (I believe that in the year of death, if the decedent was over 79.5 years of age and had not taken a required minimum distribution, it gets paid the estate. The firm that had my Dad's account did divide it into four equal shares. I did roll over my share to Vanguard, but Fidelity also would a good choice. Both firms know how to calculate the withdrawals, how to title the account, etc. It looks like the Government may have had second thoughts since 2003 about that life expectancy approach and the stretch period may now be only ten years. You should verify everything that I am telling you with a financial pro. My brother, who was semi-retired at the time, took his share as a he lump sum, but he was in a relatively low tax bracket at the time. My other brother and my sister did what I did although maybe not with Vanguard.

Nonspousal beneficiaries cannot keep their money in the TSP. If there are multiple heirs, the TSP will divide the account as directed by the account holder or "per stripes", if there was no directive in place. The only difference that I can see versus my situation is that non spousal beneficiaries must tell the TSP what do with their share. I could have kept my share with the firm that my father used, but I chose not do so. Personally, iI think that it would be easy enough for each beneficiary to do what I did, which is set up an account with a financial organization of their choice and then have his or her TSP share sent there to be setup as an inherited IRA.

There is no way to avoid paying taxes on the withdrawals from what was once a traditional TSP or IRA account. In the beginning, at least for me, the withdrawals were not that large so I did not have taxes withheld. It was like getting a little extra play money around Xmas. Now that my life expectancy is not quite so long, these withdrawals have become a little more substantial. I recently asked Vanguard to start withholding taxes on my annual withdrawals from this particular account.

BTW, I did not inherit a huge amount. But, for many years the amount of money in this account was the same or more than what I originally inherited. Since I never really expected to use this money for retirement, I did invest it rather aggressively and I have not changed that allocation. But, if I live long enough, eventually that particular account will zero out. Or I will decide there is so little left that I might as tell close it out and just pay those taxes. Right now, there is still enough in it that I do not think that I will reach that stage for at least another five to ten years.
Kivi
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someoldguy on 2/18/2020(UTC)
someoldguy  
#7 Posted : Tuesday, February 18, 2020 3:57:30 PM(UTC)
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Yes I think the law passed recently, known as the SECURE act, requires that inherited IRA/401(k) accounts be liquidated within ten years and not over the longer period you describe.

At the risk of changing the subject, I am thinking of converting some of my IRA/401k/TSP money to a Roth IRA. I have some money accumulated in these accounts and who knows what tax rates will be like when the time comes to start withdrawing. I won't be able to convert a whole lot but I am in a better position to eat the tax bite now while I'm still working.
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The HalfBreed  
#8 Posted : Wednesday, February 19, 2020 2:53:36 PM(UTC)

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I read that a "Non-Spousal" inheritance MUST file the paperwork to receive within 60 (?) days of the receipt of death of the TSP Holder.
Being that it may, I HIGHLY Suggest any folks on the inheritance list contact an appropriate fund (Fidelity, Vanguard, or whatever) and set up
an "INHERITED IRA" account FIRST, BEFORE sending the death certificate to the TSP Folks. I believe they'll send a form that needs to be filled out
and the 60 day clock starts.

Otherwise, they disburse the funds and withhold taxes and at that point, you'd be STUCK. That would hurt....
RETIRED CSRS 12/19/2012 @ age 57 w/39 years.
Good Bye Tension...Hello Pension !
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someoldguy on 2/22/2020(UTC)
someoldguy  
#9 Posted : Saturday, February 22, 2020 6:55:27 AM(UTC)
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Originally Posted by: The HalfBreed Go to Quoted Post
I read that a "Non-Spousal" inheritance MUST file the paperwork to receive within 60 (?) days of the receipt of death of the TSP Holder
That's interesting, I thought that the IRA had to be set up before the death of the spousal beneficiary.

Again, the overall message of "do your research and make a plan" holds true.

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The HalfBreed  
#10 Posted : Saturday, February 22, 2020 7:36:22 AM(UTC)

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Originally Posted by: someoldguy Go to Quoted Post
Originally Posted by: The HalfBreed Go to Quoted Post
I read that a "Non-Spousal" inheritance MUST file the paperwork to receive within 60 (?) days of the receipt of death of the TSP Holder
That's interesting, I thought that the IRA had to be set up before the death of the spousal beneficiary.

Again, the overall message of "do your research and make a plan" holds true.




I believe you're correct, however, being that I'm single, there would be no "Spouse", hence, I believe my 3 children would have to set up their inherited IRA's first.
Just in case, but I believe I read right........

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edalder  
#11 Posted : Saturday, February 22, 2020 1:48:36 PM(UTC)

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I think that advise to set up the inherited IRA account before sending the death certificate to the TSP is valid. But, I do not see a need to set up the account before the person bequeathing you this money is actually deceased.

I am sure that these institutions won't hold such an account open indefinitely and this person in question may have many good years left.

Just do it when the time comes and hold off sending the death certificate to the TSP until you are sure you have set up with the financial firm of your choice.
Kivi
The HalfBreed  
#12 Posted : Saturday, February 22, 2020 2:01:59 PM(UTC)

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Originally Posted by: edalder Go to Quoted Post
I think that advise to set up the inherited IRA account before sending the death certificate to the TSP is valid.
But, I do not see a need to set up the account before the person bequeathing you this money is actually deceased.



LOL...Yea.
I have a book for my will, and in the TSP paperwork section, the sign reads "create your Inherited IRA FIRST" Before you send in my death certificate to the TSP folks.
Since they live out of state for the most part, I put it there to read AFTER I die.

You know how it goes.....in 5-25 years, I don't (or certainly Won't) hear "I FORGOT"

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Good Bye Tension...Hello Pension !
Endless Summer  
#13 Posted : Saturday, February 22, 2020 2:17:22 PM(UTC)
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Originally Posted by: The HalfBreed Go to Quoted Post
Originally Posted by: edalder Go to Quoted Post
I think that advise to set up the inherited IRA account before sending the death certificate to the TSP is valid.
But, I do not see a need to set up the account before the person bequeathing you this money is actually deceased.



LOL...Yea.
I have a book for my will, ...



I'm wandering off topic a bit, but the book idea is brilliant. I've had to settle the estates of a few of my siblings and things would have been so much better and easier if there had been some info in addition to a will.

Things like all of the little accounts you may have scattered around, automatic withdrawals coming out of your bank accounts that need to be stopped asap, usernames and passwords for social media so your survivors can get the word out. Most of us collect or accumulate things, sometimes they are of value, but your survivors may not know that, the little figurine that I may chuck into the donate bin may be worth hundreds of dollars. Do you have a life insurance policy through work?

All the stuff that would not be typically included in a will.
The HalfBreed  
#14 Posted : Saturday, February 22, 2020 3:06:10 PM(UTC)

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Originally Posted by: Endless Summer Go to Quoted Post
Originally Posted by: The HalfBreed Go to Quoted Post

LOL...Yea.
I have a book for my will, ...


I'm wandering off topic a bit, but the book idea is brilliant. I've had to settle the estates of a few of my siblings and things would have been so much better and easier if there had been some info in addition to a will.

Things like all of the little accounts you may have scattered around, automatic withdrawals coming out of your bank accounts that need to be stopped asap, usernames and passwords for social media so your survivors can get the word out. Most of us collect or accumulate things, sometimes they are of value, but your survivors may not know that, the little figurine that I may chuck into the donate bin may be worth hundreds of dollars. Do you have a life insurance policy through work?

All the stuff that would not be typically included in a will.



Yes, I have a book with 5 sections, first and foremost the Will (2 copies, 1 enclosed in plastic insert) with instructions to the Executor and another for the Alternate Executor.
Instructions on where to file, how many Death certificates to get and maybe 10-12 "Short Certificates" which are used in cases where no Death certificate is necessary / needed.

Inheritance paperwork for my 2 Vanguard accounts (I do POD online with copies in my book)
Inheritance paperwork for my 1 Dodge & Cox account (POD online to 2 of my children w/copies in my book)
Inheritance paperwork for my TSP with signed paperwork for my 3 children equally divided (no per stirpes)
My daughter nearby on my Checking account (just in case) and also POD to her for my Capitol ONE 360 MM account.

My Life insurance that goes to my daughter that lives in my state (currently here at home - the other 2 are 800 - 1200 miles away in other states)

Bills to pay, or Stop paying.....my VA paperwork and whom to contact for my VA Burial.
Passwords on a USB stick and in writing. Disposition of my property instructions and to whom.

Section 4 is the TSP with instructions to all 3 children, especially setting up the Inherited IRA BEFORE Sending my death certificate to TSP
Including my Blue Book values, CSA # etc, and the fact that, Amount of FEGLI Life Insurance with the 75% reductions, it's monetary worth at age 68.


I'm adding or modifying it as I see fit or needed. I'm single, so no wife.

Like you Endless Summer, I did my Fathers will and 10 yrs later....my mothers will. Lots of surprises that came and bit me in the rear. I don't want this for my survivors.

Edited by user Saturday, February 22, 2020 6:19:28 PM(UTC)  | Reason: Not specified

RETIRED CSRS 12/19/2012 @ age 57 w/39 years.
Good Bye Tension...Hello Pension !
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