Thrift Savings Plan–Life Annuities Purchased by TSP

Jan 8, 2018


So far in this series, we have covered the basics of the Thrift Saving Planemployee and agency contributions, the differences between Traditional and Roth TSP accounts, loansin-service and post-separation withdrawals. This post will look at another type of withdrawal from your TSP account; life annuity.

Life Annuity Purchased by TSP

This type of annuity pays a benefit to you (or your survivor) every month for life. TSP purchases the annuity on your behalf from a private insurance company. In general, the amount must be at least $3,500.

Note: Once a life annuity is purchased, it can’t be changed.

If you choose a life annuity and you have only one type of balance (Traditional or Roth) in your account, there must be at least $3,500 in your account at the time of purchase. If you choose a life annuity and you have both a Traditional and Roth balance, the minimum of $3,500 applies to each balance separately. You may purchase an annuity if you have $3,500 in either account. TSP will purchase two of the same type of annuity (one with Traditional and one with Roth). You aren’t allowed to choose different annuities for each type of balance.

The following rules also apply:

  • Your withdrawal request to purchase a life annuity will be rejected if both balances are below $3,500. This only applies if you choose to use 100% of your TSP account to purchase. If you have both and Traditional Roth balance and at least one balance is $3,500, TSP will purchase an annuity with that account and pay the other balance directly to you as a cash payment.
  • You may choose an annuity as part of a mixed withdrawal, but any amount that can’t be used to purchase the requested annuity will be split proportionately and distributed according to other withdrawal options chosen.

There are three basic annuity types:

  • Single—paid only to you during your lifetime
  • Joint life annuity with a spouse—paid to you while you and your spouse are alive. When one dies, payments are made to the survivor for the rest of his/her life
  • Joint life annuity with someone other than a spouse who has an insurable interest in you—paid to you while you’re both alive. When one of you dies, payments are made to the survivor for the rest of his/her life.

Next, we’ll look at taxes on post-separation withdrawals, automatic enrollment refunds, and exceptions to the early withdrawal penalty rules.

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