What happens to your TSP when you die: beneficiaries & BPAs
Your TSP may be the largest asset you leave behind — and exactly what happens to it is decided by a single form most people fill out once and forget. Form TSP-3 overrides your will. A surviving spouse gets a rare perk: the ability to keep the money inside the TSP’s rock-bottom-cost funds. But there’s a hidden trap in that account that can saddle the next generation with a giant one-year tax bill, and non-spouse heirs face a 90-day clock and the SECURE Act’s 10-year rule. This guide walks through who inherits, the spousal Beneficiary Participant Account and its trap, the non-spouse path, and the mistakes that quietly cost heirs the most — with a tool that maps your situation.
1. Form TSP-3 controls
One fact governs everything else: Form TSP-3, your Designation of Beneficiary, overrides your will. Whatever your estate plan says, the TSP pays the people named on the most recent valid TSP-3 it has on file. The form must reach the TSP record keeper (not your agency) on or before your death to be valid.
A former spouse still listed on an old TSP-3 will inherit your account — regardless of what your divorce decree says, and even if they waived all rights. A court-ordered apportionment (RBCO) can divide the TSP during your life, but at death the TSP-3 is what controls. Re-file after every marriage, divorce, birth, or death.
2. The order of precedence
If there’s no valid TSP-3 on file, the account is paid under the statutory order of precedence (5 U.S.C. 8424) — the first living category takes everything:
“Child” means a natural or adopted child — not an unadopted stepchild. “Parent” excludes an unadopted stepparent. If a child predeceases you, that child’s share passes to their descendants by representation. Because this rigid hierarchy ignores blended families, financial need, and verbal promises, a TSP-3 is the only way to direct the account the way you actually want.
3. Spouse: the BPA
A surviving spouse gets a benefit no other beneficiary receives: the option to keep the inherited money inside the TSP. If the spouse’s share is $200 or more, the TSP automatically establishes a Beneficiary Participant Account (BPA) in their name. Moving the balance into the BPA isn’t a taxable event.
Inside a BPA, the spouse keeps the TSP’s famously low expense ratios, can make interfund transfers, and takes withdrawals on their own schedule — subject to required minimum distributions once they reach the applicable age (73, or 75 if born in 1960 or later). A spouse who has their own TSP account can also move the BPA into it. There’s even a small perk: BPA withdrawals aren’t subject to the 10% early-withdrawal penalty even if the spouse is under 59½.
4. The BPA trap
Here’s the part almost nobody knows, and it can cost a family dearly. A BPA does not pass through a second time. When the surviving spouse who holds a BPA later dies, the remaining balance:
- Cannot become a second-generation BPA for their heirs.
- Cannot be rolled over to an IRA by those heirs.
- Must be paid as a lump sum, fully taxable in the year received.
A surviving spouse holding a BPA should usually move it — into their own TSP account, or roll it to an IRA — so their own heirs can use an inherited IRA and the 10-year stretch instead of being forced into a single taxable lump sum. The one reason to keep a BPA: a spouse under 59½ who needs penalty-free access. See rolling the TSP to an IRA.
5. Map your situation
Pick the beneficiary type and account details to see the path, the deadline, and the tax treatment that applies.
TSP beneficiary outcome tool
General rules for civilian TSP death benefits. Not legal or tax advice — confirm with the TSP and an estate professional.
6. Non-spouse: the 10-year rule
A non-spouse beneficiary cannot keep a TSP account. The TSP opens a temporary account, and within 90 days the beneficiary should request a direct transfer to an inherited IRA (traditional → inherited traditional, Roth → inherited Roth) to preserve tax deferral. Miss the 90 days and the TSP auto-cashes-out the account and mails a check — triggering immediate tax on the traditional portion.
Once in an inherited IRA, most non-spouse beneficiaries face the SECURE Act 10-year rule: the account must be emptied by the end of the 10th year after the year of death. Eligible designated beneficiaries — a minor child of the participant, a disabled or chronically ill person, or someone no more than 10 years younger — may instead stretch withdrawals over their own life expectancy.
Many non-spouse heirs grab the entire balance as a lump sum, paying top-bracket tax on the windfall, when a direct transfer to an inherited IRA and a measured 10-year drawdown was available. Act deliberately, not quickly — the 90-day clock is for choosing the transfer, not for spending.
7. How it’s taxed
Tax treatment follows the money’s source:
| Balance | Tax to the beneficiary |
|---|---|
| Traditional TSP | Ordinary income when distributed (a lump sum can spike one year’s bracket) |
| Roth TSP — contributions | Tax-free (tax was already paid) |
| Roth TSP — earnings | Tax-free if the 5-year rule is met (death helps satisfy it) |
Death benefit payments are disbursed proportionally from your traditional and Roth balances. This is a strong argument for building Roth TSP balances during your career — they pass to heirs tax-free and don’t saddle a beneficiary with a big ordinary-income bill.
8. The costly mistakes
- No TSP-3, or a stale one. The default order of precedence — or a forgotten ex — inherits. File and update Form TSP-3.
- Naming “my estate.” Routing the TSP through your estate forfeits the inherited-IRA stretch and forces a fast, heavily taxed payout. Name individuals.
- A spouse leaving money in a BPA without planning — setting up the next generation for a forced taxable lump sum.
- A non-spouse missing the 90-day window and getting auto-cashed-out.
- Forgetting the uniformed-services account. A civilian and a uniformed TSP each need their own TSP-3. Coordinate this with your overall estate plan and survivor elections.
9. Frequently asked questions
Who inherits my TSP when I die?
Your TSP goes to whoever you named on Form TSP-3, the Designation of Beneficiary, and that form overrides your will. If you have no valid TSP-3 on file, the account is paid under the statutory order of precedence set by law: first to your spouse, then to your children equally, then to your parents, then to the executor of your estate, and finally to your next of kin under state law. Because the order of precedence can't match every family situation, and because a forgotten ex-spouse named on an old TSP-3 will inherit regardless of your divorce decree, you should file an accurate TSP-3 and update it after every major life event.
What is a Beneficiary Participant Account?
A Beneficiary Participant Account, or BPA, is a special account the TSP creates automatically for a surviving spouse who inherits at least $200 of a deceased participant's account. It lets the spouse keep the inherited money inside the TSP, with the same very low expense ratios, rather than being forced to move it out. The spouse can take withdrawals on their own schedule and make interfund transfers, and required minimum distributions apply once they reach the applicable age. Moving the balance into the BPA is not a taxable event. Non-spouse beneficiaries cannot have a BPA; their accounts in the TSP are only temporary.
What is the BPA trap surviving spouses should know about?
The Beneficiary Participant Account does not pass through a second time. When the surviving spouse who holds a BPA later dies, the remaining balance cannot become another BPA and cannot be rolled over to an IRA by the next beneficiaries. It must be paid out as a lump sum directly to them and is fully taxable in the year received, which can create a large tax bill. To avoid this, a surviving spouse who has their own TSP account can transfer the BPA into it, or roll the BPA into an inherited or their own IRA, preserving better options and the inherited-IRA stretch for their own heirs.
What happens to a TSP inherited by a non-spouse?
A non-spouse beneficiary cannot keep money in the TSP. The TSP sets up a temporary account, and within 90 days the beneficiary should request a direct transfer of the balance into an inherited IRA, traditional to inherited traditional and Roth to inherited Roth, to preserve tax deferral. If no election is made within 90 days, the TSP automatically cashes out the account and mails a check, triggering immediate income tax on the traditional portion. Most non-spouse beneficiaries are then subject to the SECURE Act 10-year rule, meaning the inherited IRA must be emptied by the end of the tenth year after the year of death.
How is an inherited TSP taxed?
It depends on whether the money is traditional or Roth. Traditional TSP balances are taxed as ordinary income to the beneficiary when distributed, so a large lump-sum payout can land in a high bracket in a single year. Roth TSP contributions come out tax-free because the participant already paid tax on them, and Roth earnings are also tax-free if the account has met the five-year requirement, which a participant's death automatically helps satisfy. Naming your estate, or having no beneficiary form so the account reaches the estate, generally forfeits the inherited-IRA stretch and forces a faster, more heavily taxed payout, which is why naming individuals is almost always better.