Naming a beneficiary

Question: I listened with interest about your story of the military man who is investing in the Thrift Savings Plan and was happy to hear your high review of the plan. My husband is a rural letter carrier and has been investing in TSP since he became eligible. When it became available he transferred all funds to the life cycle fund and is very pleased with the performance so far. Every quarter we download and print the statement; we noticed that he has NO BENEFICIARY DESIGNATED. Would that lack of specific designation cause problems for me (as his wife of 34 years) and/or our adult children in the event of his death? Or should that designation be changed as soon as possible? Thank you if you are able to respond to this question. Gail, Springville, Pennsylvania

Answer: As his spouse, the lack of a beneficiary designation shouldn't cause you any trouble. Federal law says that the spouse is automatically the beneficiary of a pension plan, including a thrift savings plan.

However, in general you should still fill it out, especially if you want to include your children as beneficiaries. It's simply a good habit to fill out the beneficiary form which, by the way, overrides what's in your will. (And if you don't have a will, please get one.).

The insurance company USAA recently listed in its newslatter three mistakes to avoid when it come to naming a beneficiary. They are worth keeping in mind.

1) Name an individual rather than an estate as beneficiary. The tax code provides named beneficiaries with more tax-friendly choices than when they receive an IRA through probate.

2) Failing to keep your designation current. It pays to review and update your beneficiaries whenever there is a major life event, from divorce to the birth of a child to retirement.

3) Don't name minor children as beneficiaries without appointing a custodian. Minors can't own investments outright, so they need an adult to act as custodian until they reach the age of majority.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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