Do TSP Beneficiaries Pay Taxes?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Yes, beneficiaries of a Thrift Savings Plan (TSP) are subject to taxes. When a beneficiary receives distributions from a TSP, these distributions are generally considered taxable income. The specific tax implications depend on the type of TSP account (traditional or Roth) and the nature of the distributions.

Taxation on Traditional TSP Distributions

Taxation on Roth TSP Distributions

  • For Roth TSPs: Qualified distributions are tax-free. However, certain conditions must be met for a distribution to be qualified.

Rolling TSP into Annuities with Enhanced Death Benefits

Rolling a TSP into annuities with enhanced death benefits can be a strategy to manage future inheritance taxes.


  1. Tax Deferral: Annuities allow the deferral of taxes until distributions are taken.
  2. Enhanced Death Benefits: These can provide additional value to beneficiaries, potentially offsetting inheritance taxes.

Beneficiaries Inheriting TSP and Rolling into Deferred Annuity with Premium Bonus

Beneficiaries inheriting a TSP can roll the funds into a deferred annuity with a premium bonus. This strategy can help in managing tax implications.

Key Points:

  1. Deferred Annuity: Allows tax-deferred growth, delaying the tax liability.
  2. Premium Bonus: Some annuities offer a bonus on premiums paid, which can enhance the value of the investment.
  3. Tax Offset: The combination of deferred growth and premium bonuses can help offset taxes owed on distributions.


Understanding the tax implications of TSP distributions and exploring options like rolling into annuities with enhanced death benefits are crucial for effective financial planning. These strategies can help manage and potentially offset future tax liabilities. Contact us today for a free quote.

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Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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