 Pension Protection Act 2006 |
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In the past, spouse beneficiaries could transfer TSP death benefit payments to their IRAs, thereby continuing to defer paying taxes on the funds. Spouse beneficiaries may now also transfer TSP death benefit payments to a Roth IRA, if eligible. The tax rules on Roth IRA transfers are complex, however. We strongly urge spouse beneficiaries to consult a tax advisor about eligibility for — and tax consequences of — Roth transfers.
As a result of the Pension Protection Act of 2006, non-spouse TSP beneficiaries can now transfer their death benefit payments to an “inherited” IRA and, in most cases, take required minimum payments based on their own life expectancy. This eliminates the tax hit that many non-spouse beneficiaries were subject to before the law was changed. However, the rules governing "inherited IRAs" are complicated, particularly if the deceased participant is over age 70½. We suggest you discuss this new benefit with your tax advisor or IRA provider as you do your estate or retirement planning.