NerdWallet's Smart Money Podcast - Strengthen Your 2026 Financial Plan and Optimize TSP and 403(b) Accounts for Heirs

Episode Date: December 11, 2025

Learn how to prepare your money for 2026 and invest retirement savings you hope to leave to your family. How do Americans feel about their money heading into 2026? How should you invest retirement accounts you don’t plan to spend so your family can benefit later? The Nerds discuss how to invest a seven‑figure nest egg in workplace retirement plans to help you understand how to balance risk, taxes and legacy goals. But first, senior news writer Anna Helhoski joins hosts Sean Pyles and Elizabeth Ayoola to discuss NerdWallet’s 2026 consumer outlook survey, including how confident people feel about their financial security, which potential money setbacks are weighing on them, and what big financial moves and risks they’re planning to take in the new year. Then, credit writer Amanda Barroso and investing writer Taryn Phaneuf join Elizabeth to discuss how a retired military listener and their soon‑to‑be-retired spouse might invest $1.2 million they’ve saved  in a TSP and 403b and  hope to leave to their children and grandchildren. They review  how TSPs and 403bs work and when it might make sense to roll them into IRAs, how to think about asset allocation when you have a long time horizon but may still face surprise retirement costs like long‑term care, and the rules around required minimum distributions and the 10‑year payout window for inherited retirement accounts. They also explore high‑level estate planning choices such as using trusts and keeping beneficiaries up to date, pros and cons of Roth conversions for heirs (including the Roth IRA five‑year rule), and how to balance leaving a legacy with using some money to create meaningful experiences with family during your lifetime. Consumer Outlook Survey https://www.nerdwallet.com/finance/studies/2026-consumer-outlook-report The Roth IRA 5-Year Rule: What to Know https://www.nerdwallet.com/retirement/learn/roth-ira-5-year-rule  Want us to review your budget? Fill out this form — completely anonymously if you want — and we might feature your budget in a future segment! https://docs.google.com/forms/d/e/1FAIpQLScK53yAufsc4v5UpghhVfxtk2MoyooHzlSIRBnRxUPl3hKBig/viewform?usp=header In their conversation, the Nerds discuss: 2026 financial outlook, economic outlook 2026, rising prices 2026, inflation 2026, emergency fund savings, how much emergency fund should I have, save 1000 emergency fund, pay off high interest debt, avalanche vs snowball debt payoff, debt consolidation options, nonprofit credit counseling, crypto investing risks, invest in AI stocks, start a business 2026, buying a home in 2026, financial anxiety, Gen Z finances, women and money stress, stock market crash preparation, and TSP investment strategy. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend. Learn more about your ad choices. Visit megaphone.fm/adchoices

Canada's Wonderland is bringing the holiday magic this season with Winterfest on select nights now through January 3rd. Step into a winter wonderland filled with millions of dazzling lights, festive shows, rides, and holiday treats. Plus, Coca-Cola is back with Canada's kindest community, celebrating acts of kindness nationwide with a chance at 100,000 donation for the winning community and a 2026 holiday caravan stop. Learn more at canadaswunderland.com. When you're flying Emirates business class, relaxing in an exclusive airport lounge, you'll see that your vacation isn't really over until your flight is over. Fly Emirates, fly better. 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 Nerd Wallet'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 Piles. 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.

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

People do tend to want a fresh start with a new year, so that optimism you mentioned isn't totally surprising, but there's anxiety in there too. 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, while women are more likely to say they feel optimistic or confident, 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. So it seems like there's a real party mix of feelings swirling around right now. 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. What are those serious concerns? Even though most people are feeling assured about their finances, one-third one-thirds still say they don't think they can handle a stock market crash or 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 one-third 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. Well, now that we know how people are feeling about their financial status, what do they say they plan to actually do next year? 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 and more debts in full.

And one in five say they plan to increase retirement contributions. All good things. But there are potentially risky financial actions that Americans plan to take in the new year, too, right? Yeah, that's right. 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 1 in 5 said they plan to invest in crypto, which is pretty volatile. Nearly 1 in 5 say they plan to start a business, which is always a gamble. Nearly 1 in 5 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. plan to buy a new home, which, you know, that's a pricey venture. 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. Yeah, just in general, your ability to weather negative outcomes.

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. 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 $1,000 and see what you can grow from there. Pay 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.

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. 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. 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. And once you've gotten that under control, the other longer-term possibilities can open up. 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. Well, Sean Elizabeth, best of luck to us all in 2026.

Crossing my fingers. I know. We're crossing our fingers for Antos for a good year. Thank you, Anna. Up next, we answer a listener's question about maximizing investment in a retirement plan. But before we get into that, a reminder, listener to send us your money 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 901-730, N-E-R-D. The email's also the same podcast at nerdwallet.com. In a moment, this episode's money question. Stay with us. 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 Burrosso. She's a good friend of the pod, and you may remember her from sharing her no-by-year story, which inspired me. Amanda. Hi, Elizabeth. I'm so pumped to be here. So thanks for having me. Of course. And how's that no-by-year going? We need to have you back next month to update us. 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. You're such an adventurous finance person, Amanda. You just like experiment and then you tell us all about it. I love

That's true. So on that no, I'm going to let you, Amanda, do the honors of reading the listener's text. 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. To answer the listener's question, we have Taryn Fanoof, an investing nerd. Welcome, Taryn. Thanks for having me. I'm really excited to be here and talk about this reader question. I feel inspired by this listener.

You know, both spouses and 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? I do. It's a pretty thoughtful question. I'm excited to dive in. 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. TSP is short for a Thrift Savings Plan, and 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 nonprofit 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. So the money is already in these retirement accounts, and ideally it's invested. So how can the listener maximize their investments?

Obviously, they could leave the money where it is, leave the investments to continue growing as they are. But sometimes an employer-sponsored retirement accounts, those investment options can be limited, can't they? 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 errors? 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 option. 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. So the listener has a long-term horizon for their investments, considering that their kids and grandkids will inherit the

money. What are some ideal investments to consider when you have a long-time horizon, Terran? 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 specific. And I'd say if they want more tailored advice on asset allocation, I'd recommend working with 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. They don't know how long their retirement will last. What do you mean by investing aggressively? I know financial advice is typically to invest heavily in stocks, 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? 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. That makes sense to me. Now, help me understand an example of investing more cautiously. Like, what does that look like? Once 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. Speaking of retirement, the listener already seemed 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?

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 listener's experience in the military. But you want to do your research to 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 the listeners should consider when passing down retirement accounts to their kids and grandkids? 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. They want that money. 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. She's begging you, people. He's begging you, please, have a plan. And 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. 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 so we're like in the throes of dealing with finding her a 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 errors affairs. My head's still that. I love that. Exactly right. she's like, listen, I've got CDs at this bank, you've got to go get them. My girl Annie works there. Oh, yeah. So, but really and truly, you know, estate plans are so important. 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, right? But the planning, I think, Taryn is just, is, so important. I'm really glad you brought that up. Exactly. I love that story about your grandma. I love that she's thinking ahead. It's very inspiring. She thinks she's going to die about every six months,

so she's got that thing updated, ready to go. Good for her. Yeah, she's rocking, though. She ain't going anywhere. Don't worry. 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 wanted. 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 at a certain age, which I think is pretty common for people who are passing along a huge sum of money. This is one topic I love to talk about. It's something I actually did two years ago, 2023. 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-opening 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 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. 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 ones. 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 errors, like a Roth IRA, for example? 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. 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? 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 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 have got resources on the Roth IRA five year rule, which will include in today's episode description. 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? 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, try 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. Love that. What about you, Terne? This is such an interesting question. If it was $1.2 million that I knew I wasn't going to 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 until 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 someone. 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 to kind of along the way. my kids would never have to pay for a flight home. They would always be booking them. Infinite flight. Anytime you want to come home, baby, I got you.

Elizabeth, I know you've got a plan. Please share. 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 frolicing. I am frolicing in a field of sunflowers with a margarita in hand and a summer dress.

I'm frolicing and frolicing. So that's it. A good dilly dally I love. I'm here for the frolicing, the dilly dally, you know, it ain't free. So I love that plan. I love the women-owned businesses, too. We just got to get you there so you can live this dream. All right. I'll be 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. Thank you. It's been a blast. And that's all 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 901-730 N-E-R-D.

You can also email us at podcast at nerdwollet.com. And we 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. 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. This episode is produced by Tess Vigland and Anna Hill Hoski. Hilary Georgie helped with editing. Nick Kirstme mixed our audio and a big thank you to NerdWallet's editors for all their help.

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