The new year brings with it an added benefit for spouses of deceased federal workers or military personnel enrolled in the Thrift Savings Plan: spouses now have their own personal beneficiary participant accounts.
During the past year, surviving spouse beneficiaries could participate in an interim program that allowed them to leave beneficiary money in the TSP, but those funds now will be placed in accounts under their own names rather than in a skeleton account. Beneficiaries whose share of the TSP balance is greater than $200 automatically will have a personal account established. Those with less than $200 will have funds paid directly to them rather than the TSP account.
Beneficiary participant accounts automatically are invested in the stable government securities (G) fund, but users can make interfund transfers into any of the individual TSP investment options or a life-cycle fund, which mixes stocks, bonds and securities.
"There are a lot of different things you can do with [the money], but you really need to take a step back and determine where you stand financially in the short term and what you want to accomplish," said Ashby Daniels, financial adviser at First Command Financial Services, adding beneficiaries need to assess their risk tolerance and reinvest accordingly.
Surviving spouses who themselves are, or were, federal employees can move beneficiary funds into their existing TSP accounts using Form TSP-90. They will not be able to make contributions or transfer money into their beneficiary participant accounts, however.
If spouses roll the funds into their own TSP, then they forfeit the ability to make early withdrawals from the beneficiary account without penalty, said Daniels. The withdrawal options are the same as a regular TSP account, and beneficiaries can invest withdrawn funds in a different type of account, he said.
If funds came from a uniformed services TSP account, then they can include tax-exempt contributions as a result of combat pay. That money cannot be transferred into a civilian TSP account and will be distributed directly to beneficiaries.
Participants can designate account beneficiaries using Form TSP-3.
More than 1 million TSP participants no longer employed by the federal government have funds remaining in their accounts. Tom Trabucco, director of external affairs for the TSP, said he expects beneficiary participant accounts will be popular, but noted the program won't grow to the 1 million participant level.
"It's certainly not insignificant," he said. "We expect this is a number that's going to grow over time as survivors continue to leave funds in the TSP."
Debut of the L 2050 Fund
The TSP also is preparing to open a new life-cycle fund, designed to move investors to less risky portfolios as they get closer to retirement. The L 2050 Fund will open on Jan. 31 and will invest higher percentages in domestic and foreign stocks -- C, S and I funds -- and lower percentages in government securities and bonds (G and F funds). Participants can begin making contribution allocations and interfund transfers into the L 2050 at 12 p.m. EST on Jan. 28. The L 2010 Fund closed on Dec. 31, 2010, and all investments were transferred into the L Income Fund.
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