By Jim Fish
“Jack O’Lantern” of All Trades, Wizard of Federal Benefits
I’ll admit that death is not one of my favorite topics of conversation. But since I work in insurance and am writing this so close to Halloween, I can’t help thinking about death from time to time even though Halloween treats death in a somewhat undignified way.
It’s hard to take Halloween death seriously with all those fake plastic skulls, cardboard tombstones, and tooth-rotting sticky treats shaped like pumpkins. I realize you have to approach Halloween with huge grains of sugar and a wink. Yet, as a federal benefits specialist, death and its many implications are part and parcel of the work I do every day. And, even though non-Halloween death is a taboo subject, I find myself frequently immersed in it.
For example, federal employees often ask me: “What happens to my TSP after I pass away? Where does that money end up if I go to my great reward before I get to use it all? You probably won’t appreciate my response, but here goes.
“It depends.” It’s a lame response, I know. Still, it’s true. If you do the right things now and don’t neglect your TSP, that money could have multiple generations singing your praises.
If you don’t, those same generations might be cursing your name. Your call.
You won’t believe the horror stories I’ve heard.
I’ve been working with feds for a long time, and I have heard some blood-curdling tales of TSP and other benefit mistakes returning to haunt government employees. The sad thing is that it didn’t have to be that way. As confusing and overwhelming as your benefits can seem, some experts (like me, for instance) are delighted to help you sort things out.
If you’re a federal employee, you already know you have some of the most incredible perks on the planet. Your TSP is the cornerstone of your Federal Employees Retirement System (FERS) retirement plan. Funded properly, that benefit will provide a huge chunk of your income when you’ve ended your service.
You get to put money into your Thrift Savings Plan throughout your career. Over time, you may save a lot of cash in your TSP, so it’s only natural to want to know what happens to that money when you die. After all, you don’t want the wrong people to end up living large on the fruits of your labor, do you? You almost certainly don’t want your nest egg absorbed into your employer’s vast coffers or claimed by Larry, your fifth cousin twice removed who last showered when Clinton was President.
What happens to that money depends greatly on how accurately you fill out one relatively simple form. But, even though this may not seem like such a challenging task, I constantly run across federal employees who either haven’t filed this document or who haven’t updated it in years.
So, do yourself a favor right now. Please update the TSP-3 form if you want to avoid an ex-spouse, child, or another relative you don’t like ending up with all your money.
Life is exceptionally chaotic, and forgetting about the TSP-3 happens much more than you might think.
What is the TSP-3 form anyway?
TSP-3 is the form used to designate one or more persons, a charity, trust, your estate, or some other legally-recognized entity, as the beneficiary or beneficiaries on your account. If you wish, this document also has a place where you can name a contingent (backup) beneficiary in case your primary beneficiary passes away.
I cannot stress this enough. The TSP-3 is not just another piece of paper you glance at and then toss into a desk drawer. It’s a crucial, legally-binding document that the folks at the Thrift Savings Plan are obligated to follow. A series of unfortunate events might occur if you don’t complete it or neglect to update it when a significant life event occurs.
For instance, if you divorce and get remarried and forget to take Wife 1 or Husband 1 off as your beneficiary, Wife or Husband 2 will not get your money, even if your heart’s desire was for them to receive it. There could be some spitting on your grave if that happens.
Fortunately, thanks to updates and improvements to the TSP in 2022, administrating your plan is now easier. There are no more excuses for procrastinating since you can do most, if not all, of the tasks related to your TSP on the website. Or, you can make changes on your phone or tablet using the TSP mobile application. Thinking about death is much less morbid when you use an app, right? If you prefer to have only some of your business floating around in the digital world, you can also submit beneficiary information by phone via the ThriftLine.
So, what if I never get around to filling out a TSP-3?
Zombies won’t come around and eat your brains if you forget or refuse to file a TSP-3. It’s worse than that. Your employer (aka “The Government”) has a way of dealing with your oversight. It’s something called “the Order of Precedence,” which sounds as if it was taken out of a Harry Potter book.
Here is the Order of Precedence outline ripped from the pages of the TSP’s handbook, which you probably need to read more thoroughly.
When you pass away without a TSP-3 on file, your hard-earned nest egg gets divvied up in the following order.
- Your spouse,
- If there is no spouse, the TSP funds pass to your child or children, with the share due to any deceased child being divided equally among that child’s descendants.
- If you have no kids, the cash goes to your parents equally or your surviving parent.
- If you have no parents, to the appointed executor or administrator of your estate
- If there isn’t an executor, your TSP goes to your next of kin, who is entitled to your estate under the laws of the state where you resided at the time of your death.
You can see how not filing out a TSP-3 might result in your loathsome and lazy nephew Igor winding up with all your cash. You do not want that to happen, do you?
Have you heard about these beneficiary designation changes for 2022?
You probably got a memo about this. At the risk of boring you, I will revisit some of the beneficiary designation changes TSP enacted in 2022.
Apparently tired of angry current spouses and forgotten children melting down and grave-spitting, TSP wants you to confirm your beneficiary info every year. It’s your responsibility to ensure it is up-to-date. You can run, but you cannot hide!
The My Account online tool is updated to remove some of the past headaches. You can now designate equal distribution to multiple beneficiaries without having to do math-y things such as figuring out and listing specific percentages. Unfortunately, you currently don’t have this option in the mobile app.
And, if you use Safari as your web browser when you access My Account, it may not work. If you run into Safari browser issues, you’ll need to switch to Google Chrome or Internet Explorer.
If you have them, contingent beneficiaries do not need to be linked to your primary beneficiaries. Contingent beneficiaries will ONLY receive payouts if all primary beneficiaries are deceased.
If you cancel a beneficiary designation you had before, you’ll have to submit a new one. You can no longer choose the default “statutory order of precedence” once you name a beneficiary.
Non-spouse beneficiaries may now start the payment process online and choose how they want to get their money.
Fish Bones: A short form with a potentially powerful punch, your TSP-3 is something requiring your attention. Fill it out and file it. If you’ve already done so, check it and update the TSP-3 regularly to ensure your cash ends up in the right pockets. And, if you are a federal employee, you should call me today and request a free copy of my book, “The Informed Fed,” which will clear up more of the mysteries surrounding how to get the most from your government benefits.
It’s accessible to all government employees, so call my office now and snag your copy. (909) 477-1686
Also, for those needing immediate gratification, you can download my nifty little “reminder” piece
“Key Retirement Milestones” by clicking on this link: https://www.pierfinancialgroup.com/index.html#article
PLEASE NOTE: You should not use the information in this article as the basis for making any transaction or decision. Always engage the advice and guidance of a qualified financial professional with expertise in the many nuances of federal benefits. The information contained in this post is general in nature and not intended to be construed as legal, tax, or investment advice. Any information in this post may not apply to or be suitable for an individual’s is specific financial situation or may require other considerations.