Understanding the RMD Rules for TSP Beneficiary Participant Accounts: Non-Spousal Beneficiary Participants

2. There is no RMD requirements for an inherited(“death”) Roth IRA. An inherited (“death”) Roth IRA owner can therefore wait until December 31 of the tenth year following the year of death of the Roth TSP participant to withdraw the entire inherited (“death”) Roth IRA. The owner is therefore encouraged to wait until the end of the tenth to withdraw the Roth account in order to allow the inherited Roth account to grow tax-free to the maximum extent possible.

3. When there are multiple non-spousal beneficiaries of a TSP participant’s account, and each beneficiary directly distributed their inherited TSP account to their own inherited (“death”) IRAs, there is a 10-year distribution requirement for each non-spousal beneficiary. Each non-spousal beneficiary must take an RMD during years through 9. The RMD calculation will be based on the single life expectancy of the oldest beneficiary.

The following example illustrates the required distributions from a deceased TSP participant’s traditional TSP account and a Roth TSP account.

Francine, a federal retiree, passed away in July 2024 at the age of 71. Francine was a widow. She named her two daughters, Jean (age 42) and Colleen (age 39) as the beneficiaries of her traditional TSP account and her Roth TSP account. Jean and Colleen each inherited 50 percent of Francine’s traditional TSP account and Roth TSP account. At the time of Francine’s death, Francine’s traditional TSP account balance was $840,500 and her Roth TSP account balance was $220,750. Both Jean and Colleen directly distributed their inherited TSP accounts to their own inherited (“death”) IRAs. At the time of the direct distribution, the traditional TSP account was worth $870,100 while the Roth TSP account was worth $260,552. As of December 31,2024, the value of both Jean’s and Colleen’s traditional inherited (“death”) IRA was $435,050 (half of $870,100) and the value of both Jean’s and Colleen’s Roth inherited (”death”) IRA was $130,276 (half of $260,552).

Under the 10-year rule, Jean and Colleen must withdraw their traditional inherited (“death”) IRA accounts no later than December 31, 2034, the end of the 10^th year following  the year of Francine’s death. Jean and Colleen can wait until the end of 2034 to withdraw their Roth inherited (“death” IRA accounts.

Jean and Colleen must each take an RMD from their traditional inherited (“death”) IRAs each year during the 10-year period. The RMD is calculated by obtaining the value of the traditional inherited (“death”) IRA as of the last day of the previous year and dividing that amount by a life expectancy factor. The life expectancy factor is the Single Life Expectancy based on the age of the older beneficiary (Jean) following the year of Francine’s death. Jean is age 43 during 2025, the year following Francine’s death. From the IRS Single Life Expectancy Tabe, the life expectancy of a 43-year-old is 42.9. Therefore, for the year 2025, the first year, both Jean and Colleen must withdraw from their traditional inherited (“death”) IRA the minimum  amount (RMD) of:

$435,050 (value of traditional IRA as of 12/31/2024)/42.9 (single life expectancy for a 43-year-old)

 = $10,141.03

For years 2 through 9, the RMDs re calculated using the previous end-of-year traditional inherited/death IRA balance and the 42.9 life expectancy decreased by 1.0 for each year after the first year. The following table summarizes the calculation of the 10-year payment RMDS following Francine’s death in 2024:

* Entire account must be withdrawn by 12/31/2034

* This chart is for illustration purposes only

Note that Jean and Colleen can withdraw more than the RMD during years 1 through 9. But withdrawing more than the RMD will likely result in additional federal and state income taxes, and possible loss of tax credits and tax deductions due to larger adjusted gross income. Jean and Colleen are therefore advised to speak to their tax advisors in order to determine how taking more than the RMD will affect their annual federal income tax and state income tax liabilities and possible loss of tax credits and tax deductions due to higher adjusted gross incomes.

The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you're eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP. Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. The mentioned case study is for illustrative purposes only. Individual cases will vary. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Prior to making any investment decision, you should consult with your financial advisor about your individual situation.

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.