Buddhist master Youngey Mingyur Rinpoche states that humans are defined by clinging to a permanent, independent, singularity.
In other words, we think we’re special, can do whatever we want, and really do not like thinking about death.
Being human means avoiding thinking about death. While it’s not healthy to obsess about death, naming a TSP beneficiary is an important part of estate planning.
In this post I’m going to break down why it is so important to name a TSP beneficiary, how to check your TSP beneficiary, and what to do if it’s not up to date.Get Gov Worker’s top 4 tips for federal employees!
Table of Contents
- Basic overview of the TSP
- 1. How to list or change a TSP beneficiary
- 2. Why listing a TSP beneficiary is so important
- 3. Why you should check your TSP beneficiary regularly
- 4. How recent changes to the TSP have affected beneficiary designation
Please do not confuse my personal blog for financial advice, tax advice or an official position of the U.S. Government. This post may contain affiliate links. If you make a purchase after clicking on a link, I get a small percentage of the sale at no additional cost to you.
Basic overview of the TSP
The TSP is an employer sponsored qualified retirement plan. It is similar to a 401(k) for federal civilian employees and those in the uniformed services. Both a TSP and 401(k) have the same contribution limits ($20,500 in 2022).
Federal employees contribute to the TSP through payroll deduction. For FERS employees, the government will match the first 5% of your salary that you contribute each pay period. CSRS employees can contribute to a TSP but they do not receive employer matching. Matching contributions are vested immediately and the automatic government contribution are vested after 3 years.
The TSP has limited investment options. TSP contributions can be invested in one of 5 TSP Funds or Lifecycle Funds. In 2022, the TSP created a mutual fund window to allow federal employees to invest a portion of their TSP balance in one of over 5,000 mutual funds (for a hefty fee).
1. How to list or change a TSP beneficiary
You have the option of listing a beneficiary on your TSP account. Prior to the May 2022 TSP website overhaul, the only way to change your beneficiary was to use the TSP-3 form to name or change a beneficiary.
Now you are able to access beneficiary information from the homepage.
If you click on the beneficiaries button on the homepage, it will take you to another page where you can see who your current TSP beneficiary is and then change the beneficiary if it is not appropriate.
2. Why listing a TSP beneficiary is so important
If you don’t list a TSP beneficiary, the TSP will disperse your TSP balance according its “Order of Precedence”.
You can get the full details of the order of precedence from the TSP’s Book 31 entitled Death Benefits but it proceeds as follows:
- To your spouse
- If none, to your child or children equally, with the share due any deceased child divided equally among that child’s descendants
- If none, to your parents equally or to your surviving parent
- If none, to the appointed executor or administrator of your estate
- If none, to your next of kin who is entitled to your estate under the laws of the state in which you resided at the time of your death
If you are like most people, I’m guessing you would like your TSP dispersed according to this strategy, or something similar.
However, it is still important to fill out the TSP beneficiary form even if you want to pass your TSP along to your spouse. When you list a TSP beneficiary, the TSP can transfer those assets to your beneficiaries without going through probate.
What is probate?
Probate is a court supervised process that makes sure one’s estate is divided properly after you die. While probate is an important legal process and helps avoid someone stealing your money after you die, it is a time consuming process. It can easily take 1-2 years for probate proceedings to finalize after your death.
Listing a TSP beneficiary allows these assets to bypass probate and helps your heirs receive their money much faster than they otherwise would be entitled to receive their money. This can be especially important if you are retired and regularly drawing upon your TSP balance in retirement.
3. Why you should check your TSP beneficiary regularly
The TSP must follow your TSP beneficiary form when dispersing your TSP balance upon death. That means that if you got divorced and never updated your beneficiary, your ex-husband or ex-wife will get your TSP balance!
If you filled out your beneficiary form when you started working for the federal government in your 20’s and haven’t thought about it since, there is high probability that your form is not up to date.
I also want to stress that you can’t expect your will or other estate planning documents to get this right. To quote the TSP website,
You cannot rely on your will, prenuptial agreement, separation agreement, property settlement agreement, or court order to specify who will inherit your TSP account because we do not use any of these documents to distribute death benefit payments.TSP Book 31
So please, make sure your TSP beneficiary is up-to-date. You don’t want to leave an unpleasant surprise for your heirs when they try to collect your TSP balance.
4. How recent changes to the TSP have affected beneficiary designation
Unfortunately, the TSP website modernization of 2022 (which added the mutual fund window) also caused many people’s beneficiary information to disappear.
Once I was able to login to the upgraded website, I was shocked to learn that the TSP had no records of my spouse and had no beneficiary listed.
And I was not the only one to experience this, I saw hundreds of comments on federal employee Facebook groups who experienced similar problems.
To be fair, I am not sure if the TSP has records of my beneficiary but this information did not make it onto the new site, or if they lost the information entirely upon the migration.
However, given the consequences of not having a TSP beneficiary listed, I went through the extra work to make sure everything was up-to-date and correct on the new site.
If you haven’t logged into the TSP since the upgrade, please do so soon, if for no other reason than to make sure your TSP beneficiary information is correct.
Summary- Go to the TSP website and check your TSP beneficiary right now!
There’s no better time to do something you know should do but don’t want to do than right now. If you’ve read this far into the article, go ahead and log on to the TSP website now and double check that your beneficiary is who you think it is. (Feel free to drop a comment in my Facebook community of Federal Employees if you found a surprise.)
SamSam i.e. "Gov Worker" started working for the government at age 18 and loved it so much that he never left. He started GovernmentWorkerFI in 2019 to help fellow federal employees understand their benefits, take control of their finances, and live their best lives.
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