Annuities

In reference to "Country Boy's" comment... I too am between 3 and 7 years until retirement (depending on my mood and the direction the agency will eventually be going!) - but I was told by someone that will be retiring very soon, and he has researched the subject a great deal, that if you die, the TSP money reverts back to the government unless you have a designated spouse (key word)... and I don't, only a daughter. I know if I take all the money out of the TSP (when I retire) I will lose a good portion to the taxman... Sounds like I don't have an alternative! Now that all that has been said... if I die prior to retirement, what happens to TSP - I thought it was safe in my will??? :( DDT

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Originally Posted by DDT

In reference to "Country Boy's" comment... I too am between 3 and 7 years until retirement (depending on my mood and the direction the agency will eventually be going!) - but I was told by someone that will be retiring very soon, and he has researched the subject a great deal, that if you die, the TSP money reverts back to the government unless you have a designated spouse (key word)... and I don't, only a daughter. I know if I take all the money out of the TSP (when I retire) I will lose a good portion to the taxman... Sounds like I don't have an alternative! Now that all that has been said... if I die prior to retirement, what happens to TSP - I thought it was safe in my will??? :( DDT

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DDT,
Go to TSP.gov Read GETTING YOUR MONEY OUT AFTER YOU SEPERATE. RE: What happens to my TSP account balance if I die.
Spaf

I recently completed a FERS retirement seminar.

Instructor said concerning Gov Annuities (Met Life) - NOT
He said instead look at TSP Monthly payments. You leave your money, allow it to make money, while drawing monthly payments out.

For example look at the below information
With a beginning account balance of:$300,000 At an assumed annual rate of return of:8.00% (interest could be more or less) Paid in monthly installments of:$2,200 You can expect to receive the following number of payments:361 Which will deplete your account in:30 Years, 1 Month
Now compare this to the Annuity, I chose 63 because that is when i PLAN to retire.

YOUR ANNUITY ESTIMATE is based on the following information:

You chose: Annuity Option 3a (Joint Life Annuity With Spouse, Level Payments, No Additional Features, 100% to Survivor)

You estimated your TSP account balance at: $300,000

When you are age: 63

Your spouse or joint annuitant will be age: 1 Your estimated monthly annuity payments are: $1408 based on an annuity interest rate index of: 5.250%

Based on your election of a 100% survivor annuity, when either you or your joint annuitant dies, the monthly payments to the survivor would be the same as payments you are receiving at the time of death.


TSP Monthly payments is the way I will go. I am so thankful I attended the FERS retirement Seminar. I would most likely had made a terrible non-reverseable decision concerning purchasing the Annuity! Additionally you can still have control over your TSP account. I do think you can only adjust your montly payments once or twice a year, but you can still move your funds around.

If the above is incorrect, someone please advise.

DDT to answer your other question:


What happens to my TSP account balance if I die? http://www.tsp.gov/resources/top.gif
If you die before your TSP account is completely withdrawn, the balance in your account will be distributed according to your most recent Designation of Beneficiary (Form TSP-3), if you completed one (See "How do I designate beneficiaries for my TSP account?"). If you did not file Form TSP-3, your account will be distributed according to the order of precedence required by law.
In order for your account balance to be distributed after your death, Form TSP-17, Information Relating to Deceased Participant, must be submitted to the TSP Service Office along with a copy of your certified death certificate.
If you are a FERS participant and you die before you separate from service, your beneficiaries are entitled to your entire account balance, whether or not you have met the vesting requirement for your Agency Automatic (1%) Contribution. If you die after the TSP purchases an annuity for you, your benefits will be provided according to the annuity option that you selected. If you die while you are receiving your account balance in a series of monthly payments, your beneficiaries will receive the balance of your account in a final single payment.
Payments made directly to spouses of deceased participants are subject to 20 percent mandatory Federal income tax withholding. However, spouses of deceased participants can avoid the mandatory withholding and defer paying taxes on all or part of their payments by having the TSP transfer the payment to a traditional IRA or eligible employer plan (including the spouse beneficiary's existing TSP account). To have the benefit payment transferred to a traditional IRA or plan, the spouse and the IRA or plan administrator must complete Form TSP-13-S, Spouse's Election of Payment Method.
Payments to beneficiaries other than a spouse are subject to 10 percent withholding; this withholding is optional. Non-spouse TSP beneficiaries can also defer paying taxes by transferring their death benefit payments to an "inherited" IRA and, in most cases, taking required minimum payments based on their own life expectancy. This eliminates the tax hit that many non-spouse beneficiaries were subject to before the Pension Protection Act of 2006 was passed. However, the rules governing "inherited IRAs" are complicated, particularly if the deceased participant is over age 70½. We suggest you discuss this benefit with your tax advisor or IRA provider as you do your estate or retirement planning.
To learn more about the taxation of payments following the death of a participant, read the tax Notice "Important Tax Information About TSP Death Benefit Payments."

I wish all the government employees attended such a seminar, during the first year they were employed.

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Originally Posted by Spaf

I wish all the government employees attended such a seminar, during the first year they were employed.

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I have been a FED for 19 years...........I just learned last year there was such a seminar. I also learned it is recommended to attend the FERS Retirement Seminar every 4 or 5 years, as data and polices can change!

After 22 years in the Air Force and now 19 in the civil servant world, I have began to think about retirement, most likely in the next three years. I do appreciate this forum!:D

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Originally Posted by DDT

In reference to "Country Boy's" comment... I too am between 3 and 7 years until retirement (depending on my mood and the direction the agency will eventually be going!) - but I was told by someone that will be retiring very soon, and he has researched the subject a great deal, that if you die, the TSP money reverts back to the government unless you have a designated spouse (key word)... and I don't, only a daughter. I know if I take all the money out of the TSP (when I retire) I will lose a good portion to the taxman... Sounds like I don't have an alternative! Now that all that has been said... if I die prior to retirement, what happens to TSP - I thought it was safe in my will??? :( DDT

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DDT you have been given bad information. I'm going to answer your concerns line by line.

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but I was told by someone that will be retiring very soon, and he has researched the subject a great deal, that if you die, the TSP money reverts back to the government unless you have a designated spouse (key word)... and I don't, only a daughter.

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The money WOULD NOT revert back to the government. It would be paid to your named beneficiary and if that was your daughter the funds would be hers.

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I know if I take all the money out of the TSP (when I retire) I will lose a good portion to the taxman...

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Yes and No.
True and False.

YES, If someone cashed out ANY qualified plan and DID NOT direct transfer or rollover to their own self directed IRA then yes they would pay ordinary income tax on the full distribution which would be an insane thing to do!

and

NO, you can rollover your TSP account when you retire or leave your job with ANY self directed IRA with any bank, investment firm or insurance company.

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if I die prior to retirement, what happens to TSP

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It's paid to whomever you named as your beneficiary under various distribution settlement options the beneficiary can elect.

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I thought it was safe in my will???

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Your WILL would only come into play IF you DID NOT name a beneficiary.

This would be the absolute worst way for these funds to pass as not only could creditors of your Estate get at those funds they would also be subject to Probate Attorney fees which are typically a minimum of 3% of the Inventory Value of your total Probate Estate.

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Originally Posted by GarySpicuzza

DDT you have been given bad information. I'm going to answer your concerns line by line.

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That's how I saw it! Nice answers!

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Originally Posted by Spaf

I wish all the government employees attended such a seminar, during the first year they were employed.

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Should have said this when you Posted....I think it should be mandatory training/review like the wonderful Information Assurance stuff we do once a year.

Do something like a retirement generator that asks questions, projects balances and keeps people on track.:cool:

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Originally Posted by GarySpicuzza

Your WILL would only come into play IF you DID NOT name a beneficiary.

This would be the absolute worst way for these funds to pass as not only could creditors of your Estate get at those funds they would also be subject to Probate Attorney fees which are typically a minimum of 3% of the Inventory Value of your total Probate Estate.

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Thank you Gary SAFE:) for finally giving me a reason to designate a beneficiary. I had not thought necessary since my designateds will be the same people that would get my account regardless.

The TSP-3 instructions say beneficiary designation is only necessary if I want funds to go someplace other than normal order of precedence-i.e. widow/er,kids/decendants, parents, executor, next of kin. The instructions do not give any indication that there would be fiscal implications related to not designating a beneficiary, so up til now I've had no incentive to do so, based on the logical order of precedence listed above. With your wisdom and insight, I'll be filling out a TSP-3 pronto. Thank you!

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Originally Posted by alevin

The instructions do not give any indication that there would be fiscal implications related to not designating a beneficiary, so up til now I've had no incentive to do so,...

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alevin, what one must understand is that ANY qualified or non-qualified pension plan, life insurance policy, annuity contract, IRA, 401k, etc., have the same distribution rules upon death with respect to named beneficiaries.

The above are ALL contracts and as such they are NON-PROBATE assets IF you have named natural persons as your beneficiaries.

Below is a quote from Florida Statute 222.13 and although this is specific to life insurance ALL beneficiary designated contracts are handled accordingly by most all states. Bold emphasis added.

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(1) Whenever any person residing in the state shall die leaving insurance on his or her life, the said insurance shall inure exclusively to the benefit of the person for whose use and benefit such insurance is designated in the policy, and the proceeds thereof shall be exempt from the claims of creditors of the insured unless the insurance policy or a valid assignment thereof provides otherwise.

Notwithstanding the foregoing, whenever the insurance, by designation or otherwise, is payable to the insured or to the insured's estate or to his or her executors, administrators, or assigns, the insurance proceeds shall become a part of the insured's estate for all purposes and shall be administered by the personal representative of the estate of the insured in accordance with the probate laws of the state in like manner as other assets of the insured's estate.

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