TSP: Uniformed Services Features, ch#14, TSP Annuities; 2008 Sep 18

TSP Features for Uniformed Services

TSP Annuities

>	What is a TSP annuity?
>	Who is the TSP annuity provider?
>	What types of TSP annuities are available?
>	What is the difference between the annuity option and the monthly payment option?
>	How can I estimate my monthly annuity payments?
>	How will my annuity payments be taxed?
>	How is my annuity purchased?
>	How can I get more information about TSP annuities?
>	FAQs

>	Return to Features Table of Contents

What is a TSP annuity?

A TSP annuity is a benefit paid each month to you (or to your survivor) for life. The TSP purchases the annuity on your behalf from its annuity provider, Metropolitan Life Insurance Company (MetLife). An annuity can only be purchased for $3,500 or more. Therefore, your account balance must be at least $3,500 at the time the TSP uses it to purchase an annuity. If you are using only a portion of your account balance to purchase an annuity, that portion must be at least $3,500.

Who is the TSP annuity provider?

Metropolitan Life Insurance Company (MetLife) is the annuity provider for the TSP. MetLife has been the provider for the TSP annuity program since the annutiy program began in January 1988. MetLife is one of the nation's largest annuity providers. It has assets of more than $120 billion, with over 320 million individual annuity contracts and group pension certificates in force.

What types of TSP annuities are available?

The TSP offers three basic types of annuities:

Single life — An annuity paid only to you during your lifetime.

Joint life with spouse — An annuity paid to you while you and your spouse are alive. When either of you dies, an annuity will be paid to the survivor for the rest of his or her life.

Joint life with someone other than your spouse — An annuity paid to you while you and a person chosen by you (but other than your spouse) are alive. This person must have an insurable interest in you. (See "Choosing Among the Annuity Options in the booklet Withdrawing Your TSP Account After Leaving Federal Service.) When either of you dies, an annuity will be paid to the survivor for life.

Joint life annuities may provide either a 100 percent or a 50 percent survivor benefit. This means that monthly payments will continue in the same amount (100 percent) or be reduced by half (50 percent) for you or your joint annuitant when either one of you dies.

Several annuity features can be combined with the basic annuity types. Those features are increasing payments, cash refund, and a 10-year certain payout:

With increasing payments, the amount of the monthly payment may increase up to 3 percent each year, depending on the change in the consumer price index.

With a cash refund, if you (and your joint annuitant) die before receiving payments equal to the amount of the account balance used to purchase the annuity, your designated beneficiary will receive a cash refund equal to the difference between the sum of the payments made and the annuity purchase price.

With a 10-year certain payout, you receive annuity payments for as long as you live. However, if you die within 10 years of the start of your annuity, your beneficiary will receive the payments for the remaining portion of the 10-year period.

Not every feature can be combined with every basic annuity type. The chart below shows the various annuity options from which you can choose.

Summary of Annuity Options
Single Life
Level Payments - with no additional features - with cash refund feature - with 10-year certain feature		Increasing Payments - with no additional features - with cash refund feature - with 10-year certain feature
Joint Life with Spouse
Level Payments - 100% survivor annuity - 50% survivor annuity - 100% survivor annuity with cash refund feature - 50% survivor annuity with cash refund feature		Increasing Payments - 100% survivor annuity - 50% survivor annuity - 100% survivor annuity with cash refund feature - 50% survivor annuity with cash refund feature
Joint Life with Other Survivor
Level Payments - 100% survivor annuity * - 50% survivor annuity - 100% survivor annuity with cash refund feature * - 50% survivor annuity with cash refund feature		* Available only if joint annuitant is not more than 10 years younger than the participant.

What is the difference between the annuity option and the monthly payment option?

An annuity is a guaranteed monthly payment for a specific amount, which will be paid as for long as the annuitant(s) is alive. The amount of each annuity payment is determined by the following factors: (1) the annuity option chosen; (2) your age when your annuity is purchased (and the age of your spouse or other joint annuitant if you choose a joint annuity) (3) the amount used to purchase your annuity; and (4) the interest rate index when your annuity is purchased. Note: A TSP annuity is not the “basic annuity” that you will receive as a result of your retirement coverage under FERS or CSRS or the retirement pay received by retired members of the uniformed services.

You can also withdraw part or all of your TSP account in a series of substantially equal monthly payments. You can choose monthly payments computed by the TSP based on the IRS life expectancy tables or monthly payments based on a specific dollar amount. If your TSP account is invested in the F, C, S, or I Funds, or any of the L Funds while you are receiving monthly payments, investment gains or losses may affect your account balance, which in turn may increase or reduce the amount or duration of your monthly payments.

How can I estimate my monthly annuity payments?

Use the Annuity Calculator to estimate what your monthly annuity payments might be. The amount of your monthly annuity payments depends to a large degree on the size of your TSP account balance (or the portion of your account that you intend to use to purchase the annuity). In addition, your annuity option and age (and your joint annuitant's age in the case of a joint life annuity), as well as interest rate index at the time that the TSP purchases your annuity, affect the monthly amount that you will receive.

If you prefer to do your own calculations, you can download the PDF-version of the Worksheet for Estimating a Monthly Annuity Payment with the monthly annuity factor tables and interest adjustment factors in order to estimate your payment under various annuity options.

How will my annuity payments be taxed?

Your annuity payments will be taxed as ordinary income in the years in which you receive them. The mandatory 20 percent Federal income tax withholding does not apply to annuity payments, and annuity payments are not subject to the IRS early withdrawal penalty tax.

How is my annuity purchased?

After the TSP receives all of the information and documentation necessary to purchase your annuity, we will generally process your annuity request and disburse the funds for your annuity within 10 business days.

On the date when the annuity provider receives your request and the money from your TSP account — generally within 2 business days after the money is disbursed — the annuity is purchased. Once the funds for your annuity have been disbursed, you cannot cancel the annuity, change the annuity option, or change the joint annuitant. After the money has left your account, you should direct all communications concerning your annuity to the annuity provider. The annuity provider will send you a package of information and an annuity contract. Your monthly annuity payments will begin approximately one month after the annuity is purchased.

How can I get more information about TSP annuities?

You can read the frequently asked questions about annuities. For more information, see the booklet, Withdrawing Your TSP Account After Leaving Federal Service. It is available on this Web site, from your agency, or from the TSP.

It is important that you understand your annuity option before you choose an annuity. Once the annuity is purchased, you cannot change or cancel it.

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