HerMoney with Jean Chatzky
Episode: “I inherited money in the form of an IRA, should I cash out now or keep it invested?”
Release Date: May 16, 2025

Introduction

In this insightful episode of HerMoney with Jean Chatzky, hosted by Jean Chatzky, the focus narrows down to navigating inherited retirement funds and optimizing Health Savings Accounts (HSAs). This episode is particularly valuable for women grappling with financial decisions surrounding inherited IRAs and managing retirement plans after significant life changes.

Segment 1: Navigating Inherited IRAs with Pam

Pam's Situation: Pam, a listener, reaches out seeking advice after inheriting a small IRA following her mother's passing. She mentions:

• Inheritance Details: Received a $3,000 IRA transferred to a Fidelity inherited IRA, which mandates annual Required Minimum Distributions (RMDs) and complete withdrawal within 10 years.
• Current Holdings: The inherited IRA is entirely taxable and currently parked in a money market account.
• Emotional Aspect: The inheritance serves as a sentimental "bucket of money" from her late mother, intended more as a yearly remembrance than an immediate financial necessity.

Key Discussion Points:

1. Options for the Inherited IRA:

   • Cashing Out: Withdraw the entire amount, pay the taxes, and reinvest elsewhere.
   • Investing: Keep the funds in the inherited IRA to allow for tax-deferred growth, with the flexibility to withdraw over 10 years.

   Notable Quote:
   Jean Chatzky [04:06]:
   "With all inherited IRAs these days, we too are on the 10-year clock. So essentially what that means is, as you pull the money out of this account, just like any other required minimum distribution from a retirement account, you've got to pay taxes on it at your current income tax rate."

2. Investment Strategies:

   • Stock-Oriented Solutions: Suggestions include investing in an S&P 500 fund or a total stock market fund, emphasizing the potential for growth while acknowledging market volatility.
   • Bond Investments: For those preferring safety, allocating funds to bonds can provide modest but stable returns.

   Notable Quote:
   Jean Chatzky [07:04]:
   "Unless you have some purpose for the money down the road, how are you thinking about this chunk of money in the scheme of your life?"

3. Emotional Considerations:
   Jean shares a personal anecdote about how she and her brothers used their inherited IRA distributions to create meaningful memories, highlighting the balance between financial strategy and emotional fulfillment.

   Notable Quote:
   Jean Chatzky [08:47]:
   "I would look at how the rest of your money is invested. I would think about how are you going to feel if the portfolio shrinks in a year rather than goes up."

Outcome:
Pam decides to appreciate the emotional value of the inheritance while considering investment options that align with her long-term financial goals.

Segment 2: Optimizing Health Savings Accounts (HSA)

Pam's Additional Query: Pam inquires about her and her husband's HSAs, which are currently held in a money market account. She seeks advice on better investment options and the logistics of transferring funds into investment vehicles.

Key Discussion Points:

1. Investment Options for HSAs:

   • Assessing Time Horizon: Determine when the funds will be needed to decide the appropriate investment strategy.
   • Balanced Fund Allocation: For long-term savings, a balanced fund with a 60/40 stock-to-bond ratio is recommended to mirror retirement account allocations.

   Notable Quote:
   Jean Chatzky [09:57]:
   "If you think that this is not money that you're going to use until you're in retirement and you're 15, 20 years away from retirement, maybe you put it in a balanced fund or something that gives you that sort of a 60, 40 exposure."

2. Strategic Withdrawals Against Medical Expenses:

   • Record-Keeping: Maintain detailed records of current healthcare expenditures to utilize HSA funds tax-free in the future.
   • Flexible Withdrawals: Funds can be used for any purpose if they've been earmarked against documented medical expenses.

   Notable Quote:
   Jean Chatzky [12:51]:
   "Health care costs that I have now, even though I'm not using dollars from the HSA, I could set aside those receipts so that in the future I could sort of look back on expenses that I had and kind of get some of that money back."

Outcome:
Pam gains clarity on optimizing her HSA by investing the funds in a manner consistent with her retirement timeline and leveraging the account's tax benefits by meticulously tracking medical expenses.

Segment 3: Managing Thrift Savings Plan (TSP) with Lori

Lori's Situation: Lori calls in with concerns regarding her husband's Thrift Savings Plan (TSP), a retirement plan for military personnel. She outlines:

• Current Holdings: A mix of TSP, rollover IRAs from previous employment, and a newly opened Roth IRA.
• Employment Status: Her husband has recently retired from the military and transitioned to a new job with higher pay, while Lori is now self-employed.
• Primary Concern: Whether to keep the TSP or transfer it to a rollover IRA, especially amid worries about the security and management of government-held retirement funds.

Key Discussion Points:

1. Consolidating Retirement Accounts:

   • Administrative Efficiency: Combining multiple accounts simplifies management and ensures a cohesive investment strategy.
   • Comparing Fees and Investment Options: Evaluate the fees associated with TSP versus potential rollover IRAs and the diversity of investment options available.

   Notable Quote:
   Jean Chatzky [18:10]:
   "The TSP is known for having incredibly low fees... However, IRAs have a lot of options that you don't have in the TSP."

2. Security Concerns:

   • Perception of TSP: Lori expresses unease about government oversight and potential vulnerabilities.
   • Personal Comfort: If Lori feels more secure outside of the TSP, transferring funds to a non-political entity may provide peace of mind.

   Notable Quote:
   Lori [22:02]:
   "I'm trying to not sound alarmist, but I just want to make sure that we are protected since I'm not sure that if they have the best people's best interests in mind."

3. Retirement Planning for the Self-Employed:

   • Spousal IRA and Roth IRA: Even without personal income, eligibility for spousal accounts based on a partner's income.
   • SEP IRA and Solo 401(k): High contribution limits (up to 25% of self-employed income) and flexible retirement savings options tailored for the self-employed.

   Notable Quote:
   Jean Chatzky [25:56]:
   "You can save for retirement. And I hope that's something that you'll do on your own behalf."

Outcome:
Lori is encouraged to consider rolling over the TSP for better administrative control and diversified investment options while also exploring retirement savings avenues suitable for her new self-employed status.

Conclusion

Jean Chatzky adeptly addresses listeners' financial dilemmas surrounding inherited IRAs, HSAs, and military retirement plans. By combining practical financial strategies with empathetic understanding of personal circumstances, Jean empowers women to make informed decisions that align with both their emotional values and long-term financial goals.

Notable Quotes:

• Jean Chatzky [07:04]:
  "Unless you have some purpose for the money down the road, how are you thinking about this chunk of money in the scheme of your life?"

• Jean Chatzky [09:57]:
  "If you think that this is not money that you're going to use until you're in retirement and you're 15, 20 years away from retirement, maybe you put it in a balanced fund or something that gives you that sort of a 60, 40 exposure."

• Lori [22:02]:
  "I'm trying to not sound alarmist, but I just want to make sure that we are protected since I'm not sure that if they have the best people's best interests in mind."

• Jean Chatzky [25:56]:
  "You can save for retirement. And I hope that's something that you'll do on your own behalf."

For more personalized financial advice, listeners are encouraged to reach out via the HerMoney mailbag at me@mailbaghermoney.com and explore HerMoney's additional programs, including Finance Fix and Investing Fix.