Strengthen Your 2026 Financial Plan and Optimize TSP and 403(b) Accounts for Heirs

Summary

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Podcast Summary: NerdWallet’s Smart Money Podcast

Episode: Strengthen Your 2026 Financial Plan and Optimize TSP and 403(b) Accounts for Heirs
Hosts: Sean Pyles, CFP® & Elizabeth Ayola
Guests: Ana Helhoski (NerdWallet News), Taryn Fanouf (Investing Nerd), Amanda Barroso (Personal Finance Nerd)
Release Date: December 11, 2025

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Episode Overview

This episode mixes a deep look at Americans’ financial outlook for 2026—based on fresh survey data—with a listener question about best practices for managing TSP and 403(b) retirement accounts intended as an inheritance. The NerdWallet team unpacks emotions, plans, and risks as people look ahead to the new year, then offers tailored strategies for leaving a financial legacy.

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Money News Roundup: Americans’ 2026 Financial Outlook

Segment: 02:03–08:05

Survey Highlights & Emotions Heading Into 2026

• Optimism Is High: 63% of Americans are optimistic they’ll be better off financially in 2026.
  • Ana Helhoski (02:45): “NerdVault’s new report found that 63% of Americans expect that 2026 will be financially better for them than 2025.”
• Anxieties Remain: About ⅓ aren’t sure they can weather economic shocks like market crashes, recessions, or income loss.
  • Ana Helhoski (04:36): “Nearly 40% say they could not withstand an income loss. So that's still a significant portion of the population.”
• Emotional Split by Demographics:
  • More men report feeling optimistic, women are more stressed or anxious.
  • Gen Z and Millennials are more likely to feel excited, vs. Gen Xers and Boomers.
  • Ana Helhoski (03:31): “More men are likely to say they feel optimistic… while women are more likely to feel stressed or anxious… Gen Z and Millennials are more likely to be excited…”

Top Financial Plans and Risks for 2026

• Popular Positive Moves:
  • Using credit card rewards or saving for emergencies (nearly 50%)
  • Paying off debts in full (⅓)
  • Increasing retirement contributions (⅕)
• Risks on the Radar:
  • 3 in 5 expect to take at least one financial risk
  • 1 in 5 plan to invest in crypto or AI-related stocks
  • 1 in 5 plan to start a business or buy a home (06:22)
• Key Concern: Inflation and rising prices remain the chief worry
  • Over ½ expect prices to worsen (04:36)

Action Steps & Nerdy Advice

• Start with Emergency Savings:
  • Even $1,000 is a solid first target if 3–6 months feels out of reach (06:42)
  • Sean Pyles (06:42): “If three to six months feels out of reach for you, start with saving a thousand dollars and see what you can grow from there.”
• Debt Payoff:
  • Use avalanche (high-interest-first) or snowball (smallest-first), or seek nonprofit credit counseling if overwhelmed (07:04)
• Invest for the Long Term:
  • Continue investing, even if only in small amounts and through workplace accounts

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Listener Question: Optimizing TSP & 403(b) for Heirs

Segment: 10:47–26:25

Listener Scenario (Read at 11:46)

Retired military (listener) and spouse (teacher, retiring soon) have comfortable pensions, Social Security, and $1.2 million in TSP & 403(b) accounts, which they intend to leave to their children/grandchildren. The key question: How should they invest those funds for legacy, not personal use?

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Understanding TSP & 403(b) Basics

(13:37–13:49)

• TSP (Thrift Savings Plan): For military/government employees; similar to a 401(k), offers traditional (pre-tax) and Roth (post-tax) options.
• 403(b): For public/nonprofit sector workers, like teachers; operates similarly to a 401(k).
• Contribution limits: $23,500 for those under 50; higher for those 50+.
  • Taryn Fanouf (13:09): “Both plans act a lot like a 401k… They offer tax advantages so you can contribute pre-tax income and get your taxes reduced now…”

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Investment Strategies for Heirs

1. Leave the Funds in the Employer Accounts or Move Them?

(13:58–14:50)

• Evaluate Investment Options & Fees:
  • Employer plans often have limited, sometimes more expensive, investment choices.
  • Consider rolling to an IRA for broader/better choices while maintaining tax advantages.
  • Taryn Fanouf (13:58): “If the listener likes the plan's investment options and the fees aren't too high… they could leave the money where it is… If they think they could get better investment options elsewhere, it's worth considering rolling the funds into an individual retirement account.”

2. Setting the Right Asset Allocation for a Long Time Horizon

(15:02–17:12)

• Balancing Growth and Caution:
  • Long horizon suggests higher stock allocation, but since it’s for heirs—not one’s own retirement—be cautious.
  • Don’t risk so aggressively that funds might decline substantially right before they’re needed.
  • Taryn Fanouf (15:02): “Normally you'd see someone with that kind of time investing aggressively. But just because they're not planning to use it doesn't mean they want to risk it all.”
  • Consider target-date funds for auto-adjusting between stocks/bonds (16:23).
• Potential Need for Unexpected Withdrawals:
  • Health costs or long-term care needs may still arise.
  • Taryn Fanouf (17:24): “I think they could experience unexpected costs in retirement that compel them to dip into these accounts…”

3. Estate Planning Essentials

(18:14–21:46)

• Required Minimum Distributions (RMDs):
  • TSPs and 403(b)s require RMDs starting at age 73—even if you’d intended not to touch them.
  • Taryn Fanouf (18:42): “Retirement accounts like these generally require you to start taking minimum distributions when you reach age 73.”
• Rules for Heirs:
  • Beneficiaries must empty inherited accounts within 10 years (22:26).
  • Non-spouse heirs owe income tax on withdrawals.
  • Amanda Barroso (22:26): “Also, non spouse beneficiaries must empty the accounts within 10 years of the account owner's death, which could lead to a robust tax bill.”
• Beneficiaries & Estate Plan:
  • Beneficiary forms in retirement accounts override your will!
  • Keep designations updated with the retirement plan administrator.
  • Consider whether a trust should be the designated beneficiary to exert more control (21:14).
  • Taryn Fanouf (21:46): “The beneficiaries you have listed within your retirement plan will supersede anyone you name in your will…”

4. Tax Efficiency: Roth Conversion?

(22:51–24:07)

• How it Works:
  • Moving TSP/403(b) funds into a Roth IRA = pay all taxes now, then grow/withdraw tax-free
• Pros: No RMDs, heirs get tax-free withdrawals, long-term tax savings for heirs
  • Taryn Fanouf (23:14): “After the conversion, your investments grow tax free and that could be significant depending on how soon you start rolling over that money.”
• Cons: May trigger a large one-time tax bill (could bump you into higher bracket), needs planning to do efficiently.
  • Taryn Fanouf (23:14): “Roth conversions can generate a significant tax bill that could even move you into a higher tax bracket.”

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Notable Quotes & Memorable Moments

• On Estate Planning:
  Amanda Barroso (19:15): “She’s begging you, people, she’s begging you—please have a plan.”
• On Generational Impact:
  Taryn Fanouf (25:16): “It could be so meaningful to make an impact with people at a younger age... I can think of a lot of ways I would use like a really nice big gift.”
• On Frolicking with Wealth:
  Elizabeth Ayola (25:45): “I am frolicking in a field of sunflowers with a margarita in hand and a summer dress and I’m frolicking and frolicking. So that’s it.”

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Timestamps for Key Segments

• Survey & 2026 Outlook: 02:03–08:05
• Listener Question (Retirement Legacy): 10:47–26:25
• TSP & 403(b) Explainer: 13:37–13:49
• Investment Strategy for Heirs: 15:02–17:12
• Estate Planning Needs: 18:14–21:46
• Roth Conversion Discussion: 22:51–24:07
• Hosts Share Their Dream Uses for $1.2M: 24:07–26:17

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Nerdy Takeaways

• Plan for Flexibility: Even if you think retirement accounts are for heirs, don’t assume you’ll never need them—medical surprises happen.
• Set Up an Estate Plan Early: Keep account beneficiaries in sync and consider if a trust fits your legacy goals.
• Maximize Tax Efficiency: Consider a Roth conversion for long horizons—but mind the tax bill.
• Make Meaningful Gifts: Sometimes making an impact during your lifetime—while seeing the benefits—is as powerful as a traditional inheritance.

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For tailored advice, especially on asset allocation and Roth conversions, consult a fiduciary financial advisor.

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“We are not your financial or investment advisors. This nerdy info is for general educational and entertainment purposes and may not apply to your specific circumstances.” (27:05)

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Next Episode Teaser:
Elizabeth will get help from Smart Travel to optimize her credit card rewards.

Call to Action:
Send questions via text/voice to 901-730-6373 or email podcasterdwallet.com.

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Transcript

[Elizabeth Ayola]

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[Sean Pyles]

If you're looking into a crystal ball wondering what's up for 2026, good luck with that. We've got something better. Actual research on what Americans are expecting to happen with their finances next year.

Welcome to NerdWallet's Smart Money podcast where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Pyles.

[Elizabeth Ayola]

And I'm Elizabeth Ayola. Later this episode, we'll be answering a listener's question about maximizing investments in a retirement plan. But first of all, our weekly Money News roundup where we break down the latest in the world of finance to help you be smarter with your money. Today we're talking about how Americans are feeling heading into 2026. We want to know how they're feeling financially, emotionally, and everything in between.

[Sean Pyles]

Our news colleague Ana Helhoski is back to talk about the results of NerdWallet's 2026 Consumer Outlook Survey that show a complicated picture of the year to come.

[Ana Helhoski]

After a year of one economic curveball after another, the outlook for 2026 is indeed complicated. But I do want to start with the bright side of things. Nervault's new report found that 63% of Americans expect that 2026 will be financially better for them than 2025. And most say they also feel sure they can cope with a variety of potential financial pitfalls in the new year. But the findings, as you might expect, aren't all sunshine and rainbows. While most Americans are feeling good about their financial security, one third still aren't certain they'll be able to financially withstand economic and personal money setbacks next year.

[Sean Pyles]

People do tend to want a fresh start with the new year, so that optimism you mentioned isn't totally surprising. But there's anxiety in there too.

[Ana Helhoski]

The survey showed that more than a third of Americans feel optimistic and or confident, but nearly one third also feel anxious and stressed. So without delving into gender stereotypes too much, there was a real divide between men and women when it comes to their feelings about their financial situation. More men are likely to say they feel optimistic or confident or while women are more likely to feel stressed or anxious. And on the generational side of things, younger Americans, that's Gen Z and Millennials, are more likely to be excited about their finances compared to Gen Xers and Baby Boomers.

[Sean Pyles]

So it seems like there's a real party mix of feelings swirling around right now.

[Ana Helhoski]

Yeah, you could say that. But overall, the findings show people are feeling pretty darn good about their finances going into 2026, and a majority said they are certain they can financially withstand a stock market crash, a recession, a loss of income, tariff related price increases, and high inflation. So that's really overwhelmingly positive. But it's also safe to say that a good portion of Americans still have some serious concerns.

[Elizabeth Ayola]

What are those serious concerns?

[Ana Helhoski]

Even though most people are feeling assured about their finances, one third still say they don't think they can handle a stock market crash or a recession or high inflation. And nearly 40% say they could not withstand an income loss. So that's still a significant portion of the population. And the findings also show that the biggest concern among Americans, and try not to be shocked, is price related. More than half say they expect prices to worsen next year, and 1/3 say they expect consumer financial protections to worsen. But once again, there's still, that optimism coming through, 38% of Americans say they do expect to be able to financially handle an emergency.

[Sean Pyles]

Well, now that we know how people are feeling about their financial status, what do they say they plan to actually do next year?

[Ana Helhoski]

Of course, feeling and doing are not always aligned. And among all of the financial actions the survey covered, nearly half of Americans said they plan to do some really traditional money moves, like using credit card rewards and saving money for emergencies. Nearly one third say they plan to pay off one or more debts in full. And one in five say they plan to increase retirement contributions.

[Elizabeth Ayola]

All good things, but there are potentially risky financial actions that Americans plan to take in the new year too, right?

[Taryn Fanouf]

Yeah, that's right.

[Ana Helhoski]

Nearly three in five Americans say they plan to take at least one financial risk in 2026. And here's what some of those risks are about. One in five said they plan to invest in crypto, which is pretty volatile. Nearly one in five say they plan to start a business, which is always a gamble. Nearly one in five also say they plan to invest in AI related stocks and funds, even though there is a potential AI bubble expanding as we speak. And about 17% say they plan to buy a new home, which, you know, that's a pricey venture.

[Sean Pyles]

So when you're taking any financial risk, it kind of comes down to measuring your own personal risk and the shape of your finances.

[Ana Helhoski]

Yeah, just in general, your ability to weather negative outcomes.

[Elizabeth Ayola]

The survey was based on possibilities, so none of the setbacks are set in stone. And uncertainty can make anyone feel a little anxious. But there are some ways to prepare for potential pitfalls.

[Sean Pyles]

Yeah, some tried and true advice would be, of course, save for emergencies. The goal is typically three to six months worth of expenses, but that can feel out of reach for a lot of people. So if three to six months feels out of reach for you, start with saving a thousand dollars and see what you can grow from there.

[Ana Helhoski]

Paying off debt is a big one, too. We're all broken records at this point, but paying down high interest at first is always a good goal.

[Elizabeth Ayola]

And a debt payoff plan is crucial, but you want to choose one that works for you, since there are so many different ones out there that could be paying down your high interest debt first, the avalanche method, or using the debt snowball method to pay off your smallest balance first.

[Sean Pyles]

But at a certain point, if your debt is just too high, you might want to look into debt consolidation or other debt relief options.

[Elizabeth Ayola]

There's no shame in getting help if you're really in a bind. You can start with a non profit credit counselor who can help you get a clearer picture of your situation and then your options moving forward.

[Ana Helhoski]

And once you've gotten that under control, the other longer term possibilities can open up.

[Sean Pyles]

And speaking of those longer term moves, it's also a good idea to invest if you can and in whatever ways are most viable. That might be stocks, bonds, CDs, your retirement accounts. Those are all positive ways to set yourself up to be in a better position in the future.

[Ana Helhoski]

Well Sean and Elizabeth, best of luck to us all in 2026.

[Sean Pyles]

Crossing my fingers I know we're crossing.

[Elizabeth Ayola]

Our fingers for Antos for a good year. Thank you Ana.

[Sean Pyles]

Up next, we answer a listener's question about maximizing investments in a retirement plan. But before we get into that, a reminder listener to send us your money.

[Elizabeth Ayola]

Questions before the year ends. Do you need some help figuring out your financial plans for next year? Or maybe you have big travel plans and want some help making your savings plan? Whatever your question is, leave us a voicemail or text us on the Nerd Hotline. The number is the same. 901-730-6373. Again, that's 9017-30-Nerd. The email is also the same. Podcasterdwallet.com in a moment.

[Sean Pyles]

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We are back and we're answering your money questions to help you make smarter financial decisions. This episode, we're answering a question from a listener who sent us a text message. But before that, let's introduce our guest co host for this segment and she is none other than our fellow nerd, Amanda Barroso. She's a good friend of the POD and you may remember her from sharing her no buy year story, which inspired me. Hey, Amanda.

[Amanda Barroso]

Hi, Elizabeth. I'm so pumped to be here. So thanks for having me. Of course.

[Elizabeth Ayola]

And how's that no buy year going? We need to have you back next month to update us.

[Amanda Barroso]

Well, you know, I wrote a story recently about how I've been thrifting my kids Christmas. Like not every gift, but a lot of them. And so that's been kind of a fun way to continue that challenge. So I'm happy to talk with you later. Maybe next month.

[Elizabeth Ayola]

You're such an adventurous finance person, Amanda. You just like, experiment and then you tell us all about it. I love it.

[Amanda Barroso]

That's true.

[Elizabeth Ayola]

So on that note, I'm going to let you, Amanda, do the honors of reading the listener's text.

[Amanda Barroso]

Okay, here we go. Hi nerds. I retired from the military two years ago and my wife is a teacher who plans to retire in four years. We can live comfortably on our pensions and Social Security. We have $1.2 million in retirement savings and a TSP and a 403B that we will not touch. How should we invest these funds? We plan to leave the money to our children and grandchildren. Thank you, nerds.

[Elizabeth Ayola]

To answer the listener's question, we have Taryn Fanouf, an investing nerd. Welcome, Taryn.

[Taryn Fanouf]

Thanks for having me. I'm really excited to be here. Talk about this reader question. I feel inspired by this Listener. You know, both spouses in this family went into service oriented careers, which is amazing and I want to thank them both. And they're entering retirement with such an ideal scenario, don't you think?

[Elizabeth Ayola]

I do.

[Taryn Fanouf]

It's a pretty thoughtful question. I'm excited to dive in.

[Elizabeth Ayola]

Well, since you're excited, let's go. And can you start by explaining what a TSP and 403B is? Lots of letters here. The listener has a large sum of money saved in both of these accounts.

[Taryn Fanouf]

TSP is short for Thrift Savings Plan. It's a type of retirement plan for government workers and others like military service members. And a 403B is a type of retirement plan for other public sector or non profit workers like employees at public schools. Both plans act a lot like a 401k which listeners may be more familiar with. They offer tax advantages so you can contribute pre tax income and get your taxes reduced now. Or if your employer offers a Roth option, you may also be allowed to contribute post tax dollars that grow tax free. There are a couple other features that work similar to a 401k as well. An employer might offer matches to employee contributions and they have the same annual contribution limits, which in 2025 is $23,500 for anyone under age 50. And if you're 50 or older, the limit is higher.

[Amanda Barroso]

So the money is already in these retirement accounts and ideally it's invested. So how can the listener ma their investments? Obviously they could leave the money where it is, leave the investments to continue growing as they are. But sometimes in employer sponsored retirement accounts, those investment options can be limited, can't they?

[Taryn Fanouf]

Yes, that's true. Your options can be limited inside these plans and it varies. But you may also find that the fees are higher than you would pay elsewhere. If the listener likes the plan's investment options and the fees aren't too high. Like you said, they could leave the money where it is, but they'd want to make sure that they are familiar with how their plan works after they retire. Can they get payouts? If they want, how is the money invested? How does it work to pass it on to their heirs? They'd want to make sure they answer those kinds of questions now. If they think they could get better investment options elsewhere, it's worth considering rolling the funds into an individual retirement account or ira. That would allow them to improve the rates they're paying or the investing options available and they'd be able to maintain the tax advantages of their plan. So for example, if you contributed pre tax dollars to your plan and you roll it over into a traditional ira, you can keep deferring those taxes until you take distributions later.

[Elizabeth Ayola]

So the listener has a long term horizon for their investment. Considering that their kids and grandkids will inherit the money, what are some ideal investments to consider when you have a long time horizon?

[Taryn Fanouf]

Taryn, this is such an interesting question. Before I get into it, I'll just note that I'm not a financial advisor and I'm definitely not this particular person's investment advisor, so I can't be too spec specific. And I'd say if they want more tailored advice on asset allocation, I'd recommend working with a fiduciary financial advisor. But I'll point out a couple things they should consider. As you mentioned, it's a long time horizon. If they plan to leave this money invested until after their deaths, it could grow for another 10, 20, 30 years depending on how old they are now and how long they live. Normally you'd see someone with that kind of time investing aggressively. But just because they're not planning to use it doesn't mean they want to risk it all. Unless they're trying to triple their kids inheritance. But that doesn't seem likely. There are some compelling reasons to be more cautious, even though the time horizon is long. For one, they don't know how long that time horizon is really like they don't know how long their retirement will last.

[Amanda Barroso]

What do you mean by investing aggressively? I know financial advice is typically to invest heavily in stocks when you're further away from retirement, but to become more conservative later on as you're approaching that retirement age. So something like a target date fund can be a simple way to do this because they automatically manage the stock bond mix for you, gradually becoming more conservative over time. It's sort of like a hands off approach. A hands off way to do that. What do you think about something like that?

[Taryn Fanouf]

Yes, when I say investing aggressively, I have that same sort of framework in mind. During the early years we're saving for retirement, we tend to invest more heavily in historically higher risk investments like stocks because we have a long time for the ups and downs of the market to even themselves out.

[Amanda Barroso]

That makes sense to me. Now help me understand an example of investing more cautiously. Like what does that look like once.

[Taryn Fanouf]

We'Re in retirement or as we're approaching it even? It's wise to change up that asset allocation to make sure that our money isn't going to evaporate in an economic downturn. For someone in a situation like our listener. That may mean pulling back on traditionally higher risk investments like stocks in favor of traditionally lower risk investments like bonds. They may not totally get out of the stock market, but it would be a much smaller slice of the pie than they were when they're 35 like I am now.

[Elizabeth Ayola]

Speaking of retirement, the listener already seems set with their own retirement savings that they can pull from now. Do you think there's a possibility that they could end up needing to pull from the funds that they're saving for their loved ones?

[Taryn Fanouf]

I think they could experience unexpected costs in retirement that compel them to dip into these accounts. I'm thinking specifically of like long term care or other health related costs that can quickly bust any budget. One study by a long term care provider called Care Scout says the median annual cost of assisted living services in 2024 was over $70,000. Long term care and assisted living aren't covered by Medicare, which I think a lot of people don't realize. It may be covered if you're using VA health benefits, which seems possible given the listeners experience in the military, but you'll want to do your research to.

[Elizabeth Ayola]

Make sure now, although the listener didn't ask, I'm thinking about how important it is to carefully plan when you intend to pass an inheritance on to loved ones. What are some high level things a listener should consider when passing down retirement accounts to their kids and grandkids?

[Taryn Fanouf]

Planning is so key. I have three things in mind that could get the ball rolling for someone who's in a situation like this. First, in this unique situation, you need to be aware of any rules governing the accounts while you're alive. For example, retirement accounts like these generally require you to start taking minimum distributions when you reach age 73. That's because if your retirement account is full of pre tax dollars, you haven't paid taxes yet, and the IRS wants you to.

[Amanda Barroso]

They want that money.

[Ana Helhoski]

They do.

[Taryn Fanouf]

They're not going to let it sit around and be untaxed forever. So even if you don't plan to touch those savings, you'll be forced to in your 70s and you'll want to make sure you have a plan for those distributions. Second, when your children inherit your retirement accounts, they'll have a whole other set of rules they have to follow and they will be responsible for any income taxes that are owed on the money after they take distributions. You'll want to make sure any technical details are well communicated so no one is surprised. And that leads me to the next consideration. Please have an estate plan.

[Amanda Barroso]

She's begging you People, she's begging you, please have a plan.

[Taryn Fanouf]

This will make it really clear how you want your assets distributed, and it will make it so much easier for your family. You do not want them to have to figure this out after you're gone.

[Amanda Barroso]

It's funny that you say this, because my grandmother, who's 97, she broke her hip about a week and a half ago, and. And so we were, like, in the throes of dealing with finding her rehab therapy place. Like, really and truly, like, living a lot of what you're saying right here. And she has this folder, she calls it the Heirs Affairs.

[Elizabeth Ayola]

Might have to steal that.

[Taryn Fanouf]

I love that.

[Amanda Barroso]

Exactly right? She's like, listen, I've got CDs at this bank. You gotta go get em. My girl Annie works there. Oh, yeah. So. But really and truly, you know, estate plans are so you can do all of this planning, but without a plan for where and how the funds are distributed, it could be in vain. You know, you work really hard for this money. You work hard in your lifetime to manage it responsibly. And like our listener here, the most lovely intentions for that money.

[Elizabeth Ayola]

Right.

[Amanda Barroso]

But the planning, I think Taryn, is just. Is so important. I'm really glad you brought that up.

[Taryn Fanouf]

Exactly. I love that story about your grandma. I love that she's thinking ahead. It's very inspiring.

[Amanda Barroso]

She thinks she's gonna die about every six months, so she's got that thing.

[Elizabeth Ayola]

Updated, ready to go.

[Amanda Barroso]

Good for her. Yeah, she's rocking, though. She ain't going anywhere. Don't worry.

[Taryn Fanouf]

So in a situation like this one, the family may also want to think about whether they want the assets to go into something like a trust. To do that, they would need to actually name the trust as the beneficiary on the accounts. So that's like a housekeeping detail that they should have in mind. An advantage of a trust may be that they could divide their assets between family and charitable organizations if that's what they want. But it also could be a way that if they wanted to set limits or specific guidelines for how they want their heirs to use the money, they could do that. With a trust, for example, they could set it up to give their children or grandchildren access, you know, at a certain age, which I think is pretty common for people who are passing along a huge sum of money.

[Elizabeth Ayola]

This is one topic I love to talk about. It's something I actually did two years ago. 20, 23. No, three years ago now. And it actually wasn't as difficult as I thought it was. One, to set up a trust and two, it was just so eye open to remember the importance of, you know, having the right beneficiaries on those retirement accounts. And if you do create that trust, like you said, making sure the trust is the beneficiary. Right. How does this work, Taryn, in terms of if people want to have the right beneficiaries on retirement accounts so that funds are allocated as they wish, it's.

[Taryn Fanouf]

Actually hugely important because the beneficiaries you have listed within your retirement plan will supersede anyone you name in your will as being the beneficiary of these accounts. So you'll want to make sure they match, keep it updated. You won't hate it because you'll be gone, but your family would be very sad to find out that your retirement accounts went to somebody you didn't intend for them to go to because you didn't update those beneficiaries. It's typically pretty easy, something that you can do through the retirement plan administrator.

[Elizabeth Ayola]

It took me just a couple of minutes to update my different accounts. I'm not dying anytime soon, guys. I'm still on the show, but just in case, the money goes to my son and my other loved one ones.

[Amanda Barroso]

So one downside of inheriting a TSP or a 403B is that you typically pay income tax on withdrawals. Also, non spouse beneficiaries must empty the accounts within 10 years of the account owner's death, which could lead to a robust tax bill. Is there a more tax efficient account for the listener to invest and save that money for their heirs? Like a Roth IRA for example?

[Taryn Fanouf]

So there is something called a Roth conversion and that involves transferring funds from a pre tax retirement account to a Roth ira. Doing the conversion does require you to pay income taxes on the amount that's rolled over, but then you get tax free growth and withdrawals.

[Amanda Barroso]

I like the sound of that. So that to me sounds like a pro. If they did do a Roth conversion, what are some other pros and cons?

[Taryn Fanouf]

So the ones I mentioned, those are definitely big advantages. After the conversion, your investments grow tax free and that could be significant depending on how soon you start rolling over that money. Also, with a Roth IRA, you wouldn't be required to take minimum distributions while you're alive and your beneficiaries wouldn't owe any taxes on the distributions they take later. They would still have to empty the accounts within 10 years, but it would be different. They wouldn't be strategizing the tax burden at the same time, but There are some downsides. For one, Roth conversions can generate a significant tax bill that, that could even move you into a higher tax bracket. You'd need to have a plan for, like, how you're going to cover that, how you're going to optimize it and minimize those taxes. Additionally, the money typically has to stay in the Roth IRA for at least five years to qualify for tax benefits. We've got resources on the Roth IRA five year rule, which we'll include in today's episode description.

[Elizabeth Ayola]

Well, before we go, guys, I just have a quick question for you both. I'm hoping that we all end up having 1.2 million that we don't need to touch. Right? So what would you guys do if you had 1.2 million and you had to invest it somehow, what would you do, Amanda?

[Amanda Barroso]

I would invest it in a trip to Italy. No, really, really and truly. I have been exploring, opening up a brokerage account and investing in some EFTs. Tried to figure out how to diversify my portfolio a little bit, make my money work for me so that I can have more adventures and travel later in my life.

[Elizabeth Ayola]

Love that. What about you, Taryn?

[Taryn Fanouf]

This is such an interesting question. If it was 1.2 million that I knew I wasn't gonna plan to use for myself, I would be looking at how I could be extravagant with my family now. And in a strategic way. I think that it's really common for people to not inherit till they're like in retirement themselves, which is still very meaningful. It's a legacy for sure. But I think it could be so meaningful to make an impact with people at a younger age. Like I'm in my 30s. I can think of a lot of ways I would use like a really nice big gift from.

[Elizabeth Ayola]

Yeah.

[Taryn Fanouf]

And also I'm the generous recipient of like my parents paying for a family vacation or having the funds to do something like that. And I think that would be such a fun way to use my money to see it. Bless my family or my friends or organizations too. Kind of along the way.

[Amanda Barroso]

My kids would never have to pay for a flight home. They would always.

[Elizabeth Ayola]

I would always be booking an infinite flight. Infinite.

[Amanda Barroso]

Anytime you want to come home, baby, I got you. Elizabeth, I know you've got a plan. Please share.

[Elizabeth Ayola]

I am a girl with a plan. So three simple things. Index funds. I'm going to be an angel investor and invest in women owned businesses. And the third one is frolicking. I am frolicking in a field of sunflowers with a margarita in hand. And a summer dress and I'm frolicking and frolicking. So that's it.

[Amanda Barroso]

A good dilly dally I love. I'm here for the frolicking, the dilly dallying. You know, it ain't free. So I love that plan. I love the women owned businesses too. We just gotta get you there so you can live this dream.

[Elizabeth Ayola]

All right, I hope you're listening, Nerd Wallet. Those bonuses will go to good use. All right, thank you Taryn for joining us. And thank you to my awesome co host, Amanda.

[Taryn Fanouf]

Thank you. It's been a blast and that's all.

[Amanda Barroso]

We have for this episode. Remember, listener that we are here to answer your money questions. So turn to the Nerds and call or text us your questions at 901-730-6373. That's 901730, nerd. You can also email [e-mail] and we.

[Elizabeth Ayola]

Want you to join us next time to hear the girls at Smart Travel help me assess my many reward credit cards and fees. Some of those are up and coming. Follow Smart Money on your favorite podcast app, including Spotify, Apple Podcasts and iHeartRadio to automatically download new episodes.

[Amanda Barroso]

And here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

[Elizabeth Ayola]

This episode is produced by Tess Vigland and Anna Helhosky. Hilary Georgie helps with editing. Nick Kirsmi mixed our audio and a big thank you to NerdWallet's editors for all their help.

[Amanda Barroso]

And with that said, until next time, turn to the Nerds.

[Sponsor Voice]

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