TSP Life Annuity Options: Single, Joint, Payments, and Taxes

Converting your Thrift Savings Plan balance into a life annuity buys you a guaranteed monthly check for the rest of your life. The Federal Retirement Thrift Investment Board contracts with Metropolitan Life Insurance Company (MetLife) to issue the contracts, and TSP life annuity options come in two basic shapes — single life and joint life — with a handful of features you can bolt on to change how the payments behave.¹ The minimum purchase is $3,500, and the decision is permanent once the money leaves your account.²

An annuity is one of four ways to take money out of the TSP after you separate; the others are a single lump sum, installment payments, or a mix.³ You don’t have to annuitize the whole balance. Many participants annuitize enough to cover fixed monthly bills and leave the rest in TSP funds or installments.

Who Can Buy One and How Much It Takes

A life annuity is only available after you separate from federal or uniformed service. It’s not offered through in-service withdrawals such as hardship or age-59½ withdrawals.⁴

The floor is $3,500, and it applies separately to your traditional and Roth balances. If you want to use both balance types, each has to independently clear $3,500, and the TSP will actually issue two separate annuity contracts: one funded by traditional money and one by Roth money.⁵ If one of your balances falls short and you’re purchasing with the whole account, only the qualifying balance is available for the annuity.²

Single Life Annuity

A single life annuity pays you a monthly amount for as long as you’re alive. When you die, payments stop, and no beneficiary receives anything unless you added a protective feature.

Because MetLife only has one lifetime to cover, this option produces the highest monthly payment for a given purchase amount. The payment is set by your age at purchase, the dollar amount used, any features you add, and the interest rate index in effect that month.² The obvious risk: die soon after the purchase and the remaining value stays with the insurer.

Joint Life Annuity

A joint life annuity covers two people, and payments continue as long as either of you is living. The monthly amount is lower than a single life annuity of the same size because MetLife is pricing two lifespans.

Spousal Consent for Married Participants

If you’re married and covered by FERS or a uniformed services retirement system, federal law gives your spouse a default right to a joint life annuity with a 50% survivor benefit, level payments, and no cash refund feature. You cannot choose any other withdrawal option unless your spouse signs a written waiver, which the TSP generally requires to be notarized.⁶⁷

CSRS is different. A CSRS spouse is entitled to notice of your withdrawal but has no veto: notification, not consent.⁸ For any retirement system, if your account balance is $3,500 or less, neither the consent nor the notification requirements apply.⁶

50% or 100% Survivor Benefit

With a 100% survivor benefit, the monthly payment stays at the same amount after the first death, regardless of which of you dies first. With a 50% survivor benefit, the survivor receives half of the original payment. Because the 50% option costs the insurer less over time, it produces a higher payment while both of you are alive.² A non-spouse joint annuitant has to be a former spouse or someone with an insurable interest in you, and those rules involve additional documentation.⁵

Optional Features You Can Add

On top of the single-or-joint choice, you pick from three optional features. Each one lowers your monthly payment because MetLife is pricing in the extra protection.

Increasing Payments

This raises your monthly payment by a flat 2% each year on the anniversary of your first payment.² It’s meant to help income keep pace with rising prices, though the 2% is fixed and won’t track actual inflation. The flat rate applies to annuities purchased on or after March 2, 2020; earlier contracts used a variable adjustment between 0% and 3% tied to the Consumer Price Index.⁹

The catch is that your starting payment is noticeably lower than a level-payment annuity, because MetLife has to fund decades of compounding increases. It takes years for the increasing option to catch up to the level option.

Cash Refund

If you (and your joint annuitant, if any) die before total payments equal the purchase price, the difference is paid to your designated beneficiary as a lump sum.² This is the protection against paying, say, $200,000 for an annuity and dying two years in.

Ten-Year Certain

Payments are guaranteed for at least 120 months. If you die within the first ten years, your beneficiary receives the remaining monthly payments through the end of that period. After ten years the guarantee expires, and payments continue only while the annuitant (or surviving joint annuitant) is alive.²

You can pick cash refund or ten-year certain, but not both. Ten-year certain is not available with a joint life annuity where the joint annuitant is someone other than your spouse.

How Your Monthly Payment Gets Set

The interest rate index in effect during the month your annuity is purchased is one of the largest drivers of your monthly payment. A higher rate means a larger payment for the same purchase amount. The TSP updates this index monthly.²

The rate locks on the date MetLife actually receives your money and processes the purchase, not the date you submit the request. Because the TSP generally disburses funds within two business days and MetLife then processes the purchase, a request sent near the end of a month can end up priced in the following month at a different rate.² The TSP posts historical annuity interest rates on its site, and the online annuity calculator will estimate what a given configuration would pay you at the current index.¹⁰

How Annuity Payments Are Taxed

The purchase itself is not a taxable event. Taxes come due as you receive the monthly payments, and the treatment depends on which balance funded the annuity.¹¹

Payments from your traditional balance are fully taxable as ordinary income, because that money was never taxed on the way in. Roth-funded payments return your contributions tax-free, and the earnings are also tax-free if the payment is “qualified” — meaning at least five years have passed since January 1 of the year of your first Roth TSP contribution, and you’ve reached age 59½, become permanently disabled, or died. Each Roth payment includes contributions and earnings in the same proportion as they exist in your Roth balance; you can’t take contributions out first.

If a cash refund or ten-year certain feature triggers payments to a beneficiary after your death, those payments are generally fully taxable to the beneficiary, with rollover options available to a surviving spouse and inherited-IRA transfer options for non-spouse beneficiaries.¹² MetLife issues the annual Form 1099-R for your annuity payments once they begin.¹³ State tax treatment varies widely.

Purchasing the Annuity — and Why You Can’t Undo It

You start the purchase through the My Account portal on tsp.gov or by submitting paper withdrawal forms. Before you begin, settle every choice: single or joint life, level or increasing payments, any optional feature, and the dollar amount from your traditional balance, Roth balance, or both. For a joint life annuity, you need the joint annuitant’s full legal name, Social Security number, and date of birth.²

If you hold both traditional and Roth money, you can direct the purchase to come only from traditional, only from Roth, or pro rata across both.¹⁴ You also set federal tax withholding at this stage. Once the TSP verifies your balance and eligibility, it transfers the designated funds to MetLife, and your first annuity payment arrives roughly 30 days after the purchase date.⁵ From then on, MetLife administers every payment.

This is where people trip up. Once the annuity has been purchased, you cannot cancel it, change the annuity type, swap features, or replace the joint annuitant.¹⁵ There is no cooling-off window. The only way to stop the process is to cancel your withdrawal request before the TSP record keeper processes it, and requests submitted by noon Eastern Time are typically processed that same night. The single exception: if a participant dies after the purchase is processed but before payments begin, MetLife returns the funds to the TSP for distribution to beneficiaries.

Given the irrevocability, run several configurations through the TSP’s annuity calculator and compare them against what installment payments from the same balance would produce before you submit anything.¹⁰

1
U.S. Department of Labor. Performance Audit of the Thrift Savings Plan Annuity Process
2
Thrift Savings Plan. Thrift Savings Plan Life Annuity Options
3
Office of the Law Revision Counsel. 5 USC 8433 – Benefits and Election of Benefits
4
Thrift Savings Plan. Information for TSP Participants Leaving Federal Employment
5
eCFR. 5 CFR 1650.14 – Annuities
6
GovInfo. 5 USC 8435
7
Federal Register. Temporary Waiver of Notarization Requirement for Spousal Consent
8
eCFR. 5 CFR Part 1650 Subpart G – Spousal Rights
9
Thrift Savings Plan. TSP Life Annuity COLA Changes to Flat 2% in March
10
Thrift Savings Plan. TSP Annuity Calculator
11
Thrift Savings Plan. Tax Rules About TSP Payments
12
Internal Revenue Service. Publication 721 – Tax Guide to U.S. Civil Service Retirement Benefits
13
Internal Revenue Service. About Form 1099-R
14
Thrift Savings Plan. Taking Money From Your Account
15
eCFR. 5 CFR Part 1650 – Methods of Withdrawing Funds From the Thrift Savings Plan