Life Insurance And Tsp: What You Need To Know

The Thrift Savings Plan (TSP) is a tax-deferred retirement savings and investment plan for federal employees and members of the uniformed services. TSP participants can choose a TSP life annuity as a way of withdrawing their TSP account upon retirement. A TSP life annuity is purchased using all or part of a participant's TSP account from an annuity provider. The TSP offers a life annuity through its annuity provider, which in previous years has been Metropolitan Life Insurance Company. This annuity can be considered upside down life insurance, where the individual buying the life annuity (the annuitant) pays the insurance company a lump sum, and the insurance company then pays the annuitant regularly for the rest of their life.

TSP life annuity withdrawal options

The Thrift Savings Plan (TSP) is a US government scheme that allows federal employees to invest their money. TSP participants can choose to keep their money in the TSP after they separate from federal service, as long as they have a vested balance of $200 or more.

There are several TSP withdrawal options available to participants once they retire or leave federal service. Participants can choose to keep their money in the TSP, or they can request a TSP withdrawal or distribution. Withdrawals can be made as a single payment, monthly payments, or a TSP lifetime annuity.

A TSP life annuity is an option for participants who want to receive monthly payments for life. To purchase a TSP life annuity, a participant must relinquish control of all or a portion of their TSP account. The TSP's annuity provider offers the following types of annuity options:

• Single life annuity with level or increasing payments
• Joint life annuity with a spouse with level or increasing payments
• Joint life annuity

The single life annuity provides guaranteed monthly payments as long as the annuitant (the TSP participant who purchased the annuity) lives. With a joint life annuity, the TSP participant receives monthly payments, and if the participant dies, their chosen joint annuitant will receive monthly payments for their lifetime. The joint annuitant is usually the TSP participant's spouse, but can also be a former spouse or someone with an "insurable interest" in the participant. An "insurable interest" means that the individual is financially dependent on the TSP participant.

The amount of the monthly annuity payment depends on several factors, including the amount of the TSP account used to purchase the annuity, the age of the participant and any joint annuitant, the type of annuity chosen, and the "interest rate index" when the annuity is purchased. The minimum purchase for a TSP annuity is $3,500 for each TSP account balance (traditional and Roth).

It is important to note that annuity purchases are irrevocable; once an annuity is purchased, no changes can be made. TSP participants should carefully consider their options and compare different types of annuities to determine which best fits their income needs.

TSPsection of the Designation of Beneficiary form

The TSP section of the Designation of Beneficiary form is a crucial aspect of financial planning, allowing individuals to designate beneficiaries for their Thrift Savings Plan (TSP) account in the event of their death. This process ensures that your TSP account is distributed according to your wishes. Here is a detailed overview of the TSP section:

Understanding the TSP Section:

The TSP section of the Designation of Beneficiary form is specifically related to your Thrift Savings Plan account. This section allows you to name one or more beneficiaries who will receive your TSP account balance after your death. It is important to note that this form only applies to the disposition of your TSP account and does not cover other assets or accounts you may have.

Designating Beneficiaries:

In the TSP section, you can designate a person or persons, your estate, or a trust as beneficiaries of your TSP account. It is recommended to provide specific information, including full names, dates of birth, and addresses, to ensure the accurate identification of your beneficiaries. You can also indicate the percentage of your TSP account that each beneficiary will receive if you wish to divide it unequally.

Order of Precedence:

The TSP section typically outlines an order of precedence for distributing your TSP account if you do not designate beneficiaries. This order is legally mandated and ensures the distribution of your account in the absence of specific instructions. The standard order of precedence is as follows:

• To your widow or widower.
• If none, to your child or children equally, including descendants of deceased children.
• If none, to your parents equally or to the surviving parent.
• If none, to the appointed executor or administrator of your estate.
• If none, to your next of kin entitled to your estate under the laws of your state of residence at the time of your death.

It is important to note that the definition of "child" typically includes biological and adopted children but may not include stepchildren unless they have been legally adopted. Similarly, "parents" typically refer to biological parents and may not include stepparents who have not adopted you.

Updating and Submitting the Form:

Remember to review and update your beneficiary designations periodically, especially if your life circumstances change, such as marriage, divorce, or the birth of children. To ensure your wishes are honoured, make sure that your beneficiary designation is on file with the relevant institution at the time of your death. You can usually submit the Designation of Beneficiary form online or through your account portal.

TSP as a retirement savings and investment plan

The Thrift Savings Plan (TSP) is a retirement savings and investment plan for federal employees and members of the military. It is a defined-contribution plan that offers federal employees many of the same benefits that are available to workers in the private sector.

TSP is similar to a 401(k) plan offered by private employers. Participants in a TSP can get an immediate tax break for their savings. They can also choose to invest in a Roth for freedom from taxes after retirement.

The TSP offers a choice of six funds and a mutual fund option:

• The Government Securities Investment (G) Fund
• The Fixed-Income Index Investment (F) Fund
• The Common-Stock Index Investment (C) Fund
• The Small-Capitalization Stock Index Investment (S) Fund
• The International-Stock Index Investment (I) Fund
• Specific Lifecycle (L) funds

The contribution limit for a TSP account is $23,000 for 2024. If you are 50 or older, you can contribute an additional $7,500 as a catch-up contribution. The federal government provides a sliding percentage scale of matching contributions for your TSP. Even if you contribute nothing, it will contribute 1% of your annual salary to your TSP. The scale tops out at a 5% government match if you contribute 5% of your salary to your TSP, thus doubling the amount of money invested.

TSP fees are low, usually around 0.05%, and transparent. In contrast, IRA investment fees in the private sector can range from 0.5% to 2.5%, depending on the type of fund.

TSPs allow you to withdraw money monthly, quarterly, or annually. TSPs will also waive the 10% early withdrawal penalty if you retire at 55 or older.

TSP life annuity options

The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services. It is a defined contribution plan, which means that the retirement income received depends on how much the individual and the FAA contribute during their working years, as well as the earnings accumulated over that time.

Upon retiring from federal service, a TSP participant can choose a TSP life annuity as one way of withdrawing their TSP account. A TSP life annuity is purchased using all, or part, of a participant’s TSP account from a company that the TSP calls the “annuity provider”. The annuity provider has been the Metropolitan Life Insurance Company in previous years.

The TSP offers a few different types of annuity options:

• Single life annuity: An annuity that provides monthly payments only to the annuitant (the TSP participant who purchases the annuity) as long as they live. This means that upon the annuitant's death, annuity payments cease, and any remaining funds are kept by the annuity provider, unless a “cash refund” benefit was selected.
• Joint life annuity with the annuitant’s spouse: An annuity that provides monthly payments to the annuitant and their spouse. When one dies, monthly payments continue to the surviving spouse for their lifetime. Upon the death of the second spouse, annuity payments stop, and any remaining funds are kept by the annuity provider, unless a cash refund was selected. The amount of the payment while both annuitants are alive depends on whether a 100% or 50% survivor annuity is chosen.
• Joint life annuity with someone other than the annuitant’s spouse: The joint annuitant must be either a former spouse or someone with an “insurable interest” in the annuitant, meaning they are financially dependent on the annuitant. Blood or adopted relatives, not including relatives by marriage, who are closer than first cousins, are considered to have an insurable interest.

The TSP also offers additional features that provide for beneficiaries:

• Cash refund: If the annuitant and the joint annuitant, if applicable, die before the amount used to purchase the annuity has been paid out, the remaining amount will be paid to the annuitant’s beneficiary/ies in a lump sum.
• Ten-year certain: If the annuitant dies before receiving annuity payments for a 10-year period, payments will continue to a beneficiary for the remainder of that period. If the annuitant lives beyond 10 years, no payment will be made to a beneficiary upon their death.

TSP participants can use the TSP website to find the annuity factors for the different types of annuities, which depend on an “interest rate index”. Generally, if interest rates are low, the annuity factors are lower compared to when interest rates are higher.

TSP annuity features

The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services. It is a defined contribution plan, meaning that the retirement income received depends on how much the employee and the FAA contribute during their working years and the earnings accumulated over that time.

Upon retiring from federal service, a TSP participant can choose a TSP life annuity as one way of withdrawing their TSP account. A TSP life annuity is purchased using all, or part, of a participant’s TSP account from a company that the TSP calls the “annuity provider”. The annuity provider has been the Metropolitan Life Insurance Company in past years.

There are several types of TSP annuity options:

• Single life annuity: An annuity that provides monthly payments only to the annuitant (the TSP participant who purchases the annuity) as long as they live. Upon the annuitant's death, annuity payments cease, and any remaining funds are kept by the annuity provider unless a "cash refund" benefit was selected.
• Joint life annuity with the annuitant’s spouse: An annuity that provides monthly payments to the annuitant and their spouse (the “joint annuitant”). When one dies, monthly payments continue to the surviving spouse for their lifetime. Upon the death of the second spouse, annuity payments stop, and any remaining money is kept by the annuity provider unless a cash refund option was selected. The amount of the payment while both are alive depends on whether the annuitant chooses a 100% or a 50% survivor annuity.
• Joint life annuity with someone other than the annuitant’s spouse: The joint annuitant must be either a former spouse or someone with an “insurable interest” in the annuitant, meaning they are financially dependent on the annuitant. Blood or adopted relatives, but not relatives by marriage, are considered to have an insurable interest.

There are two additional annuity features for annuitants who want beneficiaries to receive any remaining funds upon their death:

• Cash refund: If the annuitant (and joint annuitant, if applicable) dies before the amount used to purchase the annuity has been paid out, the remaining amount will be paid to the annuitant’s beneficiary/ies in a lump sum.
• Ten-year certain: If the annuitant dies before receiving annuity payments for a 10-year period, payments will continue to a beneficiary for the remainder of that period. If the annuitant lives beyond 10 years, no payment will be made to a beneficiary upon their death.

TSP participants can also choose between level and increasing payments:

• Level payments: The amount of the monthly annuity payments remains the same from year to year.
• Increasing payments: The amount of the payment can change each year based on inflation, as measured by the consumer price index (CPI). Increases cannot exceed 3% per year, but monthly annuity payments cannot decrease.

Frequently asked questions