Q. My sister retired in 2010 and most likely will not move her Thrift Savings Plan into an IRA and begin withdrawals until she’s required to in 2015. In the meantime, she has awarded percentages of her TSP to children and friends.
If she dies before 2015, I know that the beneficiaries will have to notify TSP. It’s my understanding that the TSP beneficiaries will each have to start new IRAs to receive their portions. I don’t think there’s any way for the beneficiaries to receive a lump-sum payment, unless they pay penalties. Am I correct? And this is true regardless of their ages?
A. The beneficiaries don’t have to start IRAs to receive their share of the TSP account. The money will be distributed as taxable income unless it is transferred into a beneficiary IRA. The early withdrawal penalty does not apply to distributions made on account of the account holder’s death.