If I Inherit a TSP Account, Do I Need to Take RMDs?

by John Cooney on Sep 25, 2019

TSP, Thrift Savings Plan, Retirement, FERS, Military Financial Planner

Understanding Required Minimum Distributions for your Thrift Savings Plan (TSP) can get a little complicated when the account is your own, and when it is an inherited TSP account, it can be even more complex.  Understanding when you have to start and how much you have to take can depend on a couple of factors, which I am going to explain here.

Know Your Terms

Required Minimum Distributions (RMDs) – Amount of money the IRS requires account owners to withdraw from a tax deferred account (such as a TSP, traditional IRA, or 401k) on a yearly basis once they turn 70 ½.

Required Beginning Date (RBD) – The RBD is the date which tax-deferred account owners must begin distributing RMDs from a tax deferred account.  For traditional IRAs, the RBD is April 1st of the year following the year which the account owner turns 70 ½.  For plans such as a TSP, 401k, 403b, and 457b, the RBD can be later than April 1st of the year after the owner turns 70 ½ IF the account owner is still working at 70 ½.  In that case the RBD will be the April 1st in the year following the account owner’s retirement.

Uniform Lifetime Table – A Life Expectancy Table to be used by account owners to calculate RMDs from retirement plans.

Single Life Table – A Life Expectancy Table used by designated beneficiaries to determine RMDs.

How Are RMDs Determined When You Inherit a Thrift Savings Plan Account?

As you can see from the RMD definition above, they do not start until the account owner turns 70 ½, however, when the TSP account is inherited, the rules for RMDs are changed, and even though the owner of the inherited account may not be 70 ½, they may still be required to take a distribution.  Determining when the distributions need to begin and how much the distribution should be is mainly determined by one question; How old was the original account owner when they passed away?

Account Owner Passes Away Before Their RBD

If the owner of the TSP account that you inherited passed away before their RBD, then you must begin taking RMDs at the later of the two below dates:

  • December 31st of the year the deceased account owner would have turned 70 ½; OR
  • December 31st of the year following the death of the original account owner

Example:  A TSP account owner, who was born on May 1st, 1955, passes away in May, 2019.  The account owner would have turned 70 ½ on November 1st of 2025.  The beneficiary is his 35-year-old daughter.  The TSP account had a balance of $100,000 on 31 December 2019 and $130,000 on 31 December 2024.

                Step 1: Determine if account owner passed away before his RBD.  Since account owner would have turned 70 ½ in 2025, his RBD would have been April 1st, 2026, therefore he passed away before his RBD.

                Step 2: Determine his RBD by confirming which is later; 31 December of the year the account owner would have turned 70 ½ or 31 December of the year following the account owner’s death.

                Year Account Owner Would Have Turned 70 ½ - 2025

                Year Following Account Owner’s Death - 2020

Since 2025, is the later of the two dates, the beneficiary must start taking RMDs by 31 December 2025.

                Step 3:  Determine the amount of the RMD.  If the RMD is being taken in the year of the account owners’ death, you will use the Uniform Lifetime Table to determine the RMD amount.  If the RMD is being taken in the years following the original account owner’s death, you will use the Single Lifetime Table.  In this example, since the RMD is being taken in the years following the original account owner’s death, the Single Lifetime Table will be used.  Since the RMD is being taken in 2025, we use the balance of the account as of 31 December 2024 ($130,000).  Using the Single Lifetime Table, we can see the Life Expectancy for the 41-year-old beneficiary (daughter’s age in 2025) is 42.7.  Therefore, to calculate the RMD amount we divide the account balance by the Life Expectancy:

                $130,000 divided by 42.7 = $3,044

                In this example, the beneficiary would be required to take a $3,044 withdrawal from the inherited TSP by 31 December 2025.

Account Owner Passes After Their RBD

If the owner of the TSP account you inherited was past their RBD, then you must begin taking RMDs by December 31st of the year the participant passed away.  An exception to this would be if the account owner had already taken their RMD for the year before they passed away.

Example:  A TSP account owner, who was born on May 1st, 1946, passes away in May, 2019.  The account owner turned 70 ½ on November 1st of 2016 and had a RBD of Arpil 1st, 2017.  The beneficiary is his 35-year-old daughter.  The TSP account had a balance of $100,000 on 31 December 2018 and $110,000 on 31 December 2019.  The account owner did not take an RMD before passing away.

Step 1: Determine if account owner passed away before his RBD.  The account owner turned 70 ½ on November 1st of 2016 and had an RBD of April 1st, 2017, therefore he passed away after his RBD.

Step 2:  Confirm if the account owner completed their RMD in the year they passed away:

  • If RMD has already been taken in the year account owner passed away, the beneficiary does not need to take an RMD until the year following the death of the account owner
  • If no RMD has been taken prior to passing away, beneficiary must take RMD in the year the account owner passed away

Since in this example, no RMD had been taken, the beneficiary is required to take an RMD in 2019.

Step 3:  Determine the amount of the RMD.  Since the RMD is being taken in the year of the account owners’ death, you will use the Uniform Lifetime Table to determine the RMD amount.  Therefore, to calculate the RMD amount we divide the account balance ($100,000) by the Distribution Period for a 73-year-old, which is 24.7:

                $100,000 divided by 24.7 = $4,048

In this example, the beneficiary would be required to take a $4,048 withdrawal from the inherited TSP by 31 December 2019.  Note that in subsequent years, the beneficiary would be using the Single Lifetime Table to calculate the RMD.

What Else Should You Consider?

  • The TSP will tell you the amount you are required to withdraw during the year, early in the year.  It is your responsibility to make sure your information is current and accurate, to ensure the number they calculate is correct.
  • If you do not take your RMD, in December, the TSP will automatically send you the amount before the end of the year.
  • Check your beneficiary listed for your account and verify the information is correct at least annually.  Additionally, if you inherit a TSP account, make sure you add your own beneficiary to the account.

Are you a beneficiary of a TSP or have you already inherited a TSP account?  Don’t stress, we are here to talk with you about your options and help guide you through the process.

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