irs not following instruction to transfer inherited tsp to an ira account

Submitted by LINDA PHILLIPS on Mon, 2022-11-14 19:31

What needs to be done if IRS fails to follow instruction to transfer TSP inherited account to IRA even if it was received on time. Evidently it was lost because IRS changed system during time it was to be transferred, but they have record of having received it,



Submitted by David Mertz on Mon, 2022-11-14 21:58

  • The IRS is not involved in the transfer of a TSP account.  Did you mean to say that the IRA custodian (not the IRS) mishandled the transfer?  If the IRA custodian mishandled the transfer, where are the funds now?  
  • The transfer is done by the TSP after they receive Form TSP-81 completed by you and Section V of that form that must be completed and certified by the receiving custodian.  Did the IRA custodian complete Section V?  Did the IRA custodian then send the completed form back to you for forwarding to the TSP or did the IRA custodian send the completed form directly to the TSP?

Submitted by LINDA PHILLIPS on Thu, 2022-11-17 19:20

Sorry I incorrectly stated IRS.  TSP-81 was filled out by client and notarized 5/16/22 and Part V was filled out by IRA custodian and faxed to TSP.  However, TSP system was shut down for system change and did not receive it.  In the meantime, check was sent to client and original paperwork sent to TPS on new system.  TPS says case is ‘pending’.  Should client send the total amount of disbursement to IRA custodian?  The client has not cashed check.  Taxes were withheld from the check so additional would have to be added back to get total of disbursement.

Submitted by Alan - IRA critic on Thu, 2022-11-17 20:05

TSP-81 is a form that the TSP apparently does not want to post on their website, so I could not pull one up. If a check was issued payable to the beneficiary rather than a direct rollover payable to the custodian of an inherited IRA, this is a serious problem. Taxes would not be withheld from a direct rollover check. What is the exact payee on this check, and did client retain a copy of the TSP-81 that was submitted?   If client requested a distribution in error instead of a direct rollover, the TSP will most likely refuse to accept the uncashed check back for reissue and client would be stuck with a taxable lump sum distribution.

Submitted by David Mertz on Thu, 2022-11-17 22:25

  • Yes, the TSP only provides Form TSP-81 by mail.  It seems that they do not want to receive any Forms TSP-81 before they have processed a Form TSP-17 identifying the potential beneficiaries and have opened a beneficiary TSP account for each individual determined to be a beneficiary.
  • The TSP is generally required to distribute the funds to the beneficiary if they do not receive the Form TSP-81 within 90 days of it being provided to the beneficiary.  It seems that this must be what triggered the TSP to make the distribution, the TSP’s belief that they did not receive the Form TSP-81 timely.  https://www.tsp.gov/for-beneficiaries/beneficiary-distributions/
  • Was the check received by the client before the expiration of the 90-day deadline?  If so, that would make this an even bigger error on the part of the TSP.
  • My experience is that the TSP performs the transfer of funds about 2 weeks after receipt of the Form TSP-81. 
  • I suspect that there is no recourse if the TSP will not rescind the distribution by accepting back the uncashed check.

Submitted by LINDA PHILLIPS on Fri, 2022-11-18 22:35

The  TSP-81 was faxed in the time specified but was not received because the fax was not working due to being shut down due to a TSP system change .   Have not been able to contact  TSP except people who can send messages to the proper department.  They will not give out number to contact them directly.  Say case is ‘pending’.  Have not said whether to return check or not. 

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