In the event that a participant dies before filing an application for TSP withdrawal, the rules and regulations that need to be followed by your beneficiary change quite a bit.
Spouse beneficiaries will receive ownership of the account and the funds in contains as a Thrift Savings Plan Death Benefits in form 81 of a beneficiary participant account (BPA). By default, the TSP invests the entire sum in the Lifecycle (L) Fund targeted most closely to the year your spouse turns 62.
Of course, your spouse has all the same TSP withdrawal and investment options that you had. Your spouse can seek an ITF (inter-fund transfer) and put the money in other withdraw tsp funds. Your spouse can also additionally or alternatively choose to make a full or partial withdrawal of the money in the account as a single payment, monthly payments, annuity, or a combination of these options.
In case of withdrawals of TSP, note that the money comes proportionally from your traditional (non-Roth) and Roth balances. As such, pretty much the same tax consequences of TSP withdrawal apply for your spouse as you would have faced yourself.
Who’s the Beneficiary in a Thrift Savings Plan Death Benefits?
If you had thought about this and took the initiative to fill up and submit Form TSP-3 (Designation of Beneficiary), then there is very little confusion or debate about who the beneficiary or beneficiaries will be.
In the event that you died while still in federal service and did not file a TSP-3, then the order of precedence kicks in as follows – spouse; children and descendants of deceased children; parents or surviving parent; estate executor or administrator; next of kin entitled to estate under state law.
Once the TSP has determined the identity of the beneficiaries, an information packet will be mailed to them explaining the TSP death benefit and how they can make a TSP withdrawal (Form TSP-81; Death Benefit Election for a Non-Spouse Beneficiary).