Estate is Beneficiary of Thrift Savings Plan Retirement Assets

Submitted by Jim Hatlestad on Fri, 2018-06-29 20:42

Tom was single with no children – he died at age 68. He named his parents as beneficiaries of his Thrift Savings Plan retirement account. Tom’s parents died before he died. No contingent beneficiaries were named. Tom’s estate is the beneficiary of his Thrift Savings Plan. Tom’s 3 siblings are beneficiaries of his estate. What options are available when the retirement assets are paid to the estate? Can the assets be rolled over, or transferred to an Inherited IRA set up in the name of the estate? If so, can the estate then roll over, or transfer the assets to separate Inherited IRA’s for each of the estate beneficiaries? They in turn distribute all the assets in their accounts over the next 5 years? Or, does the estate simply receive the retirement assets and distribute them to each beneficiary with the beneficiaries reporting and paying tax on the money? They don’t want to keep the estate open very long. Thank you for any help you can provide.



Submitted by Alan - IRA critic on Fri, 2018-06-29 23:45

  • The answer is that your last question was correct. Since he passed prior to his RBD and his estate was the default beneficiary, the TSP will issue a lump sum check to the estate of the participant.  This is the worst outcome for the estate beneficiaries since they will receive a K 1 from the estate and will be taxed on their share of the balance in the year of the lump sum distribution.
  • A non TSP qualified plan would likely have the same restriction. While the IRS rules permit the 5 year rule to be applied, for that to happen, the plan provisions would have to authorize either partial annual distributions to the estate over 5 years or perhaps waiting until the last year to issue the lump sum check.  Unfortunately, plans do not include that options, they almost all require the lump sum to be paid out as soon as the paperwork and death cert. is submitted.
  • Even if the executor dragged their feet on submitting the papers, the TSP may get notification from SSA or some other source of the death of the participant. I doubt of the executor could hold off the lump sum for very long.

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