Inherited IRA from Thrift Savings Plan (TSP)
Death of TSP owner in 2021, all traditional funds. I am a non-eligible designated beneficiary. Told I could use the old stretch rules because of an exception for “Governmental plans, such as 403(b) and 457 plans sponsored by state and local governments, and the Thrift Savings Plan (TSP) sponsored by the Federal government. For these plans, per the Secure Act, the 10-year rule goes into effect beginning January, 2022.” Is this accurate? If so, where could I find the reference to back this statement up?
Permalink Submitted by Alan - IRA critic on Wed, 2021-09-22 20:36
What you were told is correct. Sec 401(a)(3)(C) of the Secure Act states that the effective date for govt plan beneficiaries is for deaths after 12/31/2021. Therefore, it is correct that you qualify for the old RMD rules and avoid the 10 year rule.
Permalink Submitted by Patricia Giroux on Fri, 2021-09-24 13:49
Thanks for confirming the existance of the exception! Now I want to take advantage of it but two investment companies have told me I would be under the 10 yr rule & decline tax advice. Both told me to check with my CPA who would have no involvement in setting up the Inherited IRA or issuing the 1099. I did a Google search on the Sec of the Secure Act you referenced on qualified pensions but couldn’t find specific language to show the investment companies. Maybe I did it incorrectly. Would you be able to send a link to Sec 401(a)(3)(C) of the Secure Act ? Would I need to convince the investment co of the rule exception? If I set up the Inherited IRA & withdraw the correct amount of the stretched RMD during the year, the investment company would have to send me a 1099 with the accurate RMD amount. If I have them reference TSP funds in the titling of the Inherited IRA, would it help showing the source of the funds if IRS questioned it down the road? I obviously want to take advantage of the stretch but am trying to have documentation as to why I can utilize the exception. Since no RMDs would be required under the 10 yr rule, IRS questioning it may come after 10 yrs when my recollection of why I qualified would need to be backed up with a printed reference. I called the IRS who understood the question but because the exception is not in Pub 590 A or B, couldn’t advise me. Only comment was maybe because it’s a qualified plan, it wasn’t included in Pub 590. I appreciate any suggestions you could provide.
Permalink Submitted by Bruce Steiner on Sun, 2021-09-26 19:25
The IRA custodian is correct not to give you legal advice.
The lawyer handling the estate, or the lawyer handling your estate planning, should be able to advise you.
The IRA custodian should merely report the distributions you take. The tax consequences of what you do or don’t do should be between you and the IRS.
There are people in the IRS who understand the rules though you may have difficulty reaching them (and of course due to the pandemic it’s hard to reach anyone at the IRS, and in general it’s hard to reach the people at the IRS who deal with retirement benefits).
Bruce Steiner
Permalink Submitted by Alan - IRA critic on Fri, 2021-09-24 17:08
Following is a link to Sec 401 of the Secure Act. Scroll down to (a)(3)(C).
Text – H.R.1994 – 116th Congress (2019-2020): Setting Every Community Up for Retirement Enhancement Act of 2019 | Congress.gov | Library of Congress
A direct rollover to an inherited IRA does not change the fact that the TSP is what was inherited and does not change the life expectancy stretch from inheriting prior to the Secure Act effective date for govt plans, but you make a good point in the unlikely case of the IRS questioning this in 10 years. In fact, as a non spouse beneficiary of the TSP, you must do a direct rollover to an inherited IRA because the TSP does not allow you to maintain an inherited TSP as a non spouse beneficiary. Keep a copy of the 1099R reporting the direct rollover from the TSP and also the TSP final statement, and death certificate.
Pub 590 B does not address non IRA plan rules. Perhaps the TSP will update their brochures at some point to address the Secure Act RMD changes.
Permalink Submitted by Patricia Giroux on Fri, 2021-09-24 18:34
I appreciate so much the link and your comments. Your reference is exactly what I was looking for. Thank you, thank you!