Your TSP account doesn’t follow your will. It doesn’t follow a divorce agreement, a prenuptial arrangement, or a court order. It goes to whoever is listed on your TSP beneficiary designation form.
If you’ve never filled out Form TSP-3, or haven’t updated it recently, that’s worth fixing. If there is no beneficiary on file when you die, the TSP distributes your account in a fixed order set by law: first to your spouse, then to your children equally, then to your parents, then to your estate. That default order may or may not reflect your wishes.
If Your Spouse Inherits Your TSP
A surviving spouse has the most flexibility of any TSP beneficiary. The TSP will establish a beneficiary participant account in the spouse’s name, and that account can stay in the TSP for as long as the spouse wants. The money remains invested, the spouse can make interfund transfers, and withdrawals are available as needed. Note: You cannot make contributions to, borrow from, or roll money into a beneficiary participant account. One thing to be aware of: if your spouse keeps the funds in a TSP beneficiary participant account and later dies, the next-in-line beneficiary cannot keep the money in the TSP. It gets paid out as a taxable distribution, no rollover option, no inherited IRA. For that reason, many financial planners recommend that a surviving spouse roll the inherited TSP into their own IRA rather than staying in the TSP.
If Anyone Else Inherits Your TSP
Non-spouse beneficiaries, children, siblings, other family members, and trusts, cannot keep money in the TSP. The TSP will establish a temporary account in the beneficiary’s name, and they have 90 days to request payment. If they don’t act within that window, the TSP will automatically send the full balance as a direct payment. This direct payment cannot be rolled over to an IRA, making what could have been a tax-deferred inheritance a fully taxable event in a single year.
If the beneficiary acts quickly, they can request a direct rollover into an inherited IRA, which at least allows the funds to remain tax-advantaged. Under the 10-year rule established by SECURE Act 2.0, they must fully distribute the inherited account by the end of the tenth year following your death. Whether they must also take annual distributions during years one through nine depends on your age at death: if you had already reached your required beginning date for RMDs, annual distributions are required throughout the 10-year period. If you died before reaching that age, the beneficiary can wait and take the full balance in year ten.
The Roth TSP Angle
This is where converting traditional TSP funds to Roth during your lifetime starts to look compelling from an estate planning perspective.
A Roth TSP you inherit is still subject to the 10-year distribution rule for non-spouse beneficiaries. But there’s a meaningful difference: distributions from an inherited Roth account are tax-free, provided the original account met the five-year holding requirement. The beneficiary still has to take the money out within 10 years, but they won’t owe income tax on it when they do.
Compare that to inheriting a traditional TSP balance. Every dollar distributed from a traditional inherited account is taxable ordinary income in the year it’s received. If your child inherits $400,000 in traditional TSP funds and takes it out over 10 years, they’re adding $40,000 or more to their taxable income every year for a decade.
Why Rolling Your Roth TSP to a Roth IRA Is Worth Considering
The TSP’s non-spouse inheritance restrictions create a real planning problem that a Roth IRA doesn’t have. When a non-spouse beneficiary inherits a Roth IRA, they get the same 10-year rule, but the rollover process is cleaner, the distribution flexibility is better, and there’s no 90-day clock forcing their hand.
More importantly, if you roll your Roth TSP into a Roth IRA before you die and your spouse inherits it, your spouse can treat the Roth IRA as their own. They can then designate your children or other heirs as their beneficiaries. When your spouse eventually passes, those heirs inherit a Roth IRA, not a TSP account, giving them the full 10-year window with tax-free distributions and no forced lump-sum payout.
A Few Practical Steps
Check your Form TSP-3 today. Log in to My Account at TSP.gov and confirm your beneficiary designation reflects your current wishes. Life changes (divorce, remarriage, the birth of children or grandchildren) don’t automatically update your TSP beneficiary.
Think about the order of inheritance. If your spouse is your primary beneficiary, consider what happens one step further. A surviving spouse who stays in the TSP as a beneficiary participant creates a potential tax trap for whoever comes next. Rolling into an IRA solves that.
Consider the Roth conversion question in this context. If you have a large traditional TSP balance, part of the argument for converting some of it to Roth isn’t just about your own retirement tax rate; it’s about what you’re passing on. Tax-free money is a better inheritance than pre-tax money, all else being equal.
A Federal Retirement Consultant (FRC®) can help you look at your TSP beneficiary situation alongside your broader estate plan and identify whether any changes, including a Roth conversion or a planned rollover strategy, make sense for your family.
