Basics: TSP Death Benefits

Section 1: Regulatory Context

The distribution of TSP accounts upon death is governed by Title 5 of the U.S. Code and 5 CFR Part 1651. Unlike a private will, the TSP is a contract-based asset; funds are distributed strictly according to the statutory order of precedence unless a valid Form TSP-3 (Designation of Beneficiary) is on file at the time of death. Under the SECURE 2.0 Act, the tax treatment of these benefits depends on the beneficiary’s relationship to the deceased. The Federal Retirement Thrift Investment Board (FRTIB) is required to identify and notify potential beneficiaries once a participant’s death is officially reported.

Section 2: If/Then Scenarios

• If the primary beneficiary is a spouse, then the TSP will automatically establish a Beneficiary Participant Account (BPA) in the spouse’s name, allowing the funds to remain in the TSP system with continued tax-deferred growth.
• If the beneficiary is a non-spouse (such as a child or sibling), then they cannot maintain a BPA; they must receive a lump-sum payment or roll the funds into an Inherited IRA to defer immediate taxation.
• If no beneficiary designation is on file, then the TSP must follow the legal order: 1) Spouse, 2) Children, 3) Parents, 4) Appointed Executor, 5) Next of kin under state law.
• If the deceased held a Roth TSP balance, then the earnings are typically tax-free to the beneficiary provided the five-year aging rule was met by the original participant.

Section 3: System Integration

Death benefits are triggered when a survivor or agency official submits Form TSP-17 (Information Relating to Deceased Participant) along with a certified copy of the death certificate. The TSP Service Office then freezes the account to prevent further activity. Once processed, the system generates a Notice of Beneficiary Award, which outlines the specific dollar amount or share allocated to each individual. Spousal beneficiaries manage their new BPA via the standard TSP “My Account” portal, utilizing the same investment funds (G, F, C, S, I) as active employees.

Section 4: 3-Step Action Plan

1. Verify Designation: Active or separated employees should log into My Account to confirm that Form TSP-3 accurately reflects their current intent, as this overrides any instructions in a personal will.
2. Report the Death: Survivors must notify the TSP immediately by calling the ThriftLine or using the online secure portal to prevent unauthorized withdrawals or automated RMDs.
3. Select Distribution Method: Beneficiaries must decide within the required timeframe whether to keep funds in a BPA (spouses only), execute a direct rollover to an Inherited IRA, or accept a taxable lump-sum distribution.