COVID 19 Spousal Inheritance Rules Employer Plan TSP SECURE ACT

Submitted by Virginia Fogarty on Sat, 2020-05-02 18:37

As the spouse (age 74) of deceased husband (age 77) from COVID 19 on March 29, what are my options with the TSP regarding moving balances? I thought per SECURE ACT I could take the balances to an IRA in my own name and use Uniform Life Table (smaller RMDs). A rep at Fidelity seemed to think I would be required to take funds as Inherited account and use only Single Life Expectancy Table (larger RMDs).
Which is correct?

Further complication, an automatic distribution was made from the TSP in the amount of $200 on April 18. I was ill as well but recuperated at home, probably had same virus according to conversation with our doctor. The $200 distirbution was made to deceased husband’s Federal Income Tax Withholding. I cannot get anyone to discuss this with me at the TSP until they set up a Beneficiary Participant Account which may take 30 days or more. I offered to give them a check for the amount but they won’t deal with the matter.

If I am able to move or transfer the TSP Funds to an IRA in my own name, will I then be able to convert a portion of those funds to a Roth IRA. I currently have 2 Roth IRAs in my own name and they are more than 5 years old. I presently do not have any traditional IRAs but if I am able to move the TSP Funds, what table would determine my RMD —Uniform Life Table — I hope?

Thanks for your help.



Submitted by Alan - IRA critic on Sat, 2020-05-02 23:02

  • Very sorry to hear of your recent loss.
  • Your options here are as you indicated. First, the Secure Act does not affect your situation as beneficiary, even if Secure had been effective for beneficiaries in 2020. For the TSP is is effective for deaths after 12/31/2021 since it is a govt plan. But Secure does not affect spousal beneficiaries in any event.  As a surviving spouse, you have the same options as before, including the spousal rollover.
  • The TSP is somewhat different from other plans when it comes to beneficiaries. A “beneficiary participant account” sounds like it applies to all beneficiaries, but the TSP uses the term solely for surviving spouses. If you maintained one of these accounts at the TSP, your RMD would be much higher since the single life table would be used. This would also be negative for YOUR beneficiary, since at your death your beneficiary would have no option but a lump sum taxable distribution. No possibility for a direct rollover to an inherited IRA. But you MUST first establish the beneficiary participant account before you can have the balance directly rolled over to a traditional IRA. You would establish a rollover IRA account at the IRA custodian of your choice, and the TSP balance can be directly rolled over (no withholding) to the IRA. This will probably require your completion of a special TSP form for them to release the funds, even after you have established the beneficiary participation account.  With RMDs now waived for 2020, the transfer can be done without concern over 2020 RMDs. 
  • As for the $200 withholding, that should be recorded on your final joint return. As for attempting a rollover, it is more trouble than it is worth since a distribution to a decedent could only go into an inherited IRA of your husband and would not have a beneficiary named on it. Most custodians would not even accept that rollover without an IRS letter ruling, so there are so many hurdles to work through, it is not worth your trouble for some a small amount. Note that a surviving spouse cannot make a post death IRA contribution for their spouse either. Even if you have not provided the TSP with the death cert and form they require yet, if you reported husband’s death, they should have shut off any future distributions from his TSP account that would end up in his estate.
  • As for Roth conversions, yet it may be wise to consider converting a certain amount since this is the last year you can file using the lower joint rates, and there are no RMDs in your income this year. Conversely, in 2021 you will be filing single and have RMD income added in, so 2020 should be your chance to convert, pay a lower tax rate on the conversion, and have your future Uniform Table RMDs reduced due to a slightly lower year end 2020 balance. You just need to figure out how much to convert based on your entire financial and tax situation. 
  • All conversions you do into an already qualified Roth IRA will also be immediately qualified and tax free.

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