Podcast Episode - Ask KT & Suze Anything: Can I Start a Roth for My 3 Year Old?

On this episode of Ask KT and Suze Anything, Suze answers questions about 529 plans, Social Security and IRA rollovers.  Plus, a quick word about the markets and tariffs and more.

Listen to Podcast Episode:

Podcast Transcript:

Suze: April 2nd, 2025. Welcome everybody to the Women and Money podcast as well as everybody smart enough to listen. Yes, I know, I said April 2nd.

Suze: And most of you are listening to this because the podcast normally drops on April 3rd, but because we will be traveling tomorrow, we recorded it a day earlier, and it's actually 9:37 a.m. and the reason that I'm telling you that, everybody, is that before we begin the Ask KT and Suze Anything portion of the Women and Money podcast. Say hi to everybody,

KT: Hi Everybody!

Suze: Right, is that obviously today is the day that tariffs are going to be announced, and so many of you have been writing in to go, Suze, Suze, what's going to happen when he announces? Are there tariffs? Are there not?

Suze: Take a pause. Take a breath. All right.

Suze: President Trump has told you he's going to be announcing tariffs at the time that we are recording this, he hasn't announced yet.

Suze: But let me just talk to you a little bit about the stock market regardless of what happens. Right now it is down because people think he is going to be announcing tariffs. And do you know how I talked to all of you about support and resistance levels? You need to know that this market is going to probably go on a roller coaster ride. It's already been on a roller coaster. Do you like roller coasters? I actually do.

KT: Suze loves them. I don't.

Suze: I love them so much. But anyway, so just be prepared for it as I'm recording this with KT. The Standard and Poor's 500 index is about 5,601. That is the level it is at.

Suze: It's down 30 points so far on the day. A lot of you have been writing in and go, What is the next support level, the level that if it goes down to, it should bounce up.

Suze: That level is 5480 for those of you who just want to know. If it breaks that level, it could absolutely go down another 5% to 5,367. OK, so it could go down, but I expect that it will hold at 5480 and it could then go up and its resistance will be 5,703.

Suze: So for those of you who don't know what I'm talking about, a support level is when the market goes down to a certain point and the market supports it there.

Suze: And you want it to hold there and if it breaks at that level, it then falls more. Resistance is it starts to go up and it hits a resistance level, and it's very hard to go through that. So the next week or two you're going to see bouncing all over the place. And for those of you who wrote in and wanted to know that now you know, all right, KT, how are you, my dear?

KT: Kind of bouncing around. That's what I am.

Suze: Should that have been your quizzy?

KT: What is the resistance level? All right. So are we ready?

Suze: What do you think my resistance level is with you?

KT: 0.

Suze: You don't think I have a resistance level with you? Never. What does that mean?

Suze: Does that mean that I just go off the wall no matter what

KT: All the time.

Suze: No, KT, that's not true.

KT: We don't have resistance levels.

Suze: We just keep going higher and higher.

KT: Yeah, we just go up. We don't drop and we don't worry about resistance level.

Suze: Oh, that's my girl. All right, OK, OK, you got good questions?

KT: I have a first comment from Natalie, and I love this.

Suze: Wait, I just want to say something before you ask questions, all right.

Suze: As much as all of you care about the stock market, there are other things in your personal financial life that you need to pay attention to, which is usually what this particular podcast Ask KT and Suze Anything is about. So just don't focus on one thing. You have to focus on everything. All right, KT.

KT: OK, but focus on this, everyone.

KT: This is from Natalie. She said, Hi, Suze and KT. I played your can I afford it games on Suze's YouTube channel. Wait, so many of you don't know this, but Suze's official YouTube channel, which is youTube.com/ Suze Orman, yes, now offers a really fun can I afford it game which is part of the original Suze Orman show, which many of you watched for decades. In any event, I want you to go there and play this. Natalie writes super fun, great jackets. She's mentioning Suze's wardrobe. If you can definitely make more of these, please, but obviously you need to come up with a KT avatar.

KT: So I'm not going to tell you why she said that until you go and actually play Suze's Can I Afford game.

Suze: Yeah, and there's other things there as well, and it seems to be quite popular. We just launched it a week or two ago. Can you believe that for all these years I couldn't get my own YouTube channel back. Somebody had it and we didn't even know who had it. Anyway, that's besides the point. All right, KT, ask away.

KT: OK, first question here. It says my mother has a 529 account for my son. My son is going to graduate in May. This is from Teresa. So let me explain. This is a little bit long, everybody.

KT: There's approximately $7000 left in that 529 account. On one of your podcasts, you mentioned that 529 accounts can be moved into a Roth account. The 529 company confirmed this, but said the funds wouldn't be accessible without a  penalty for 15 years.

KT: The IRS rules this isn't a quizzy. Hold on. The IRS rules say that the Roth account has to be open for 15 years to do this, which isn't the same as what the 529 company said. Suze, my son has a Roth that's been open for a year, so what should we do with the leftover 529 money?

KT: Then she said her mom is 81 years old.

Suze: Teresa, listen to me. For your son to be able to transfer it to a Roth IRA. The 529 account has to have been opened for at least 15 years. For those of you who are wondering what Teresa is talking about is that if you happen to have had a 529 account that has been opened for at least 15 years.

Suze: And let's just say Teresa had had this account for 15 years, and the beneficiary of it was her son.

Suze: And he had earned income in the year that he wanted to roll it over into the Roth. The Roth IRA has to be in the name of her son.

Suze: And it has to be subject to the annual Roth IRA contribution limit for this year, which is $7000 since he is under 50.

Suze: And just so you know, there's a lifetime limit of $35,000 that can be rolled over for this. So it's very tricky, everybody, and listen, contributions and earnings from the last 5 years that you've put into the 529 are not eligible to be rolled over, so they gave you a benefit.

Suze: That it's just so hard to use. It's not even funny, so I doubt many of you will be able to be qualified for it. All right, KT, next, why are you looking like that?

KT: Because I wish people, we, we need to video at least one of our podcasts for we're sitting here with our bathrobes on. It's late in the morning on the 2nd, and Suze's so animated that her hands fly everywhere when she's giving this advice.

KT: And she often just barely misses the mic.

KT: So I'm looking at her like trying to direct those hands flying everywhere. She gets very, very excited and very animated.

Suze: Well, the reason that I get excited and animated, it's like...

KT: You're frustrated.

Suze: If you're going to give everybody a benefit, like being able to transfer money from a 529 plan into a Roth, make it so that it really applies to the majority of people. Don't make it so hard.

Suze: That even the 529 plan company doesn't know how it works. All right.

KT: All right. This is from Andrea. She said, I love your podcast so much.

Suze: Me too.

KT: My financial adviser is advising me to buy municipal bond ETFs and money market municipal bonds. Is this a safe way to reduce federal income taxes?

KT: Is it?

Suze: You know. All of you have to weigh reducing income taxes against possible loss of principal. Any municipal investment, a bond or an ETF or mutual fund that is made up of municipal bonds, the interest on those bonds are absolutely federally tax free.

Suze: But they also have to be bonds that are in the state that you live in if you live in a state that is taxable, so if you live in California, you would need an ETF or mutual fund that was made up of all municipal bonds of the state of California. I don't think that's a great way for you to save taxes because normally the interest rate on municipal bonds are lower.

Suze: Than what the actual taxable yields on treasuries and certificates of deposits happen to be, like if you look at the yield on the 12 month CD at Alliant Credit Union, which is an incredible yield right now, I think you would find and you would do that by the way, by going to myalliant.com. I think you would find that that yield after taxes may be even higher than your ETF or mutual fund made up of municipal bonds.

Suze: And remember an ETF or a mutual fund doesn't have a maturity date, so you have no guarantee of getting back the amount of money that you originally put in. So the fact that you're even asking this question tells me about your sophistication level, and truthfully I wouldn't be doing it if I were you.

Suze: All right, what is that look for?

KT: It took a long time to get to a no.

Suze: Am I being too verbose?

KT: No,

Suze: Is verbose the right word?

KT: It's not verbose at all. Verbose is your actions, but the amount of information, I would have taken the no right up front and be happy with it.

Suze: But KT, don't you want these people to be educated as to how it works?

KT: Not necessarily.

Suze: Yeah, of course you don't.

KT: Just give her the straight up no.

Suze: This is, this

KT: is from Nisha.

KT: All right, this is a yes or no as well. Hi, Suze, I'm still working, but wondering if I should take a lump sum or monthly annuity when I retire next year.

KT: I was sure to take an annuity, but now my company's pension benefit has been sold and transferred to an insurance company as a group annuity. Is it still safe to take an annuity over a lump sum in this case?

Suze: Yeah, but I need to know the amounts. What are the amounts?

KT: So the choice is the lump sum is 500,000 or the annuity is 3300 per month with 50% survival benefit when I retire next year. That's from Nisha.

Suze: So Nisha, the big mistake that all of you make is that you really think that upon your death, that your spouse will need 50% less than what they were getting when you were alive, and I can tell you over all the years that I've been doing this, that is not true because if both of you also qualify for Social Security upon your death, Nisha, if you happen to die first.

Suze: Your spouse is going to lose half of your pension in this case and also your Social Security or your spouse's Social Security. One of those will go away whichever one is lower, so their income will go down dramatically. And when one spouse dies, I call it the loneliness factor where the spouse is lonely, so they actually spend more money.

Suze: When one of you is alive than when both of you are alive because you go to visit your kids more, you go out to eat more, you're just lonely, so you have to take that into consideration now. The numbers that KT gave me that you could have a $500,000 lump sum rollover or an an annuity of $3300 per month.

Suze: Or approximately 1650 per month upon your death.

Suze: So at 3300 per month, that's a 7.9% return on your money, which is a great return.

Suze: Now if you have kids or anything like that.

Suze: And it does go to your spouse upon your spouse's death. All that money is gone. So if both of you are killed in a car crash, it's immediately all gone.

Suze: So I don't know, do you have kids? Do you not? If you die, then your spouse's return goes down to 3.96%. Obviously, if you rolled it over.

Suze: And you invested it, you probably only would be getting maybe 3 or 4% on that money but still have access to the principal. So you're going to have to decide this one because I don't have enough information on it. But if you don't have any kids, if you know that your spouse will be absolutely OK with $1650 a month after your death.

Suze: Because it's possible that your spouse could die before you as well, then the annuity might be a good choice. I just don't have enough information, but I've just given you the information that you need to think about in making this decision. All right, next, KT.

Suze: Oh, I finally answered a question. She doesn't have a look on her face like,

KT: Well, you know, I was just thinking about the friend of ours that was in publishing who was not married, did not have children, and for her, the annuity made a great deal of sense. Remember?

Suze: Yes, yes

KT: That worked out.

KT: Great, great for her...

Suze: Great for her because she also did it at a time when interest rates were very high and her return was incredible. So sometimes everybody, it does make sense. You need to sit down with somebody and go through the pros and the cons of it.

Suze: In your particular situation because every one of you is different decisions.

KT: OK, next from Maria. I love your podcast and look forward to listening every Sunday and Thursday. Thank you so much, Suze, for all the information and guidance you provide. So for 2024, due to my income, I cannot contribute to a Roth IRA.

KT: My question is, should I convert the traditional IRA immediately or the same day into a Roth IRA in order to avoid accruing interest that I would need to pay tax on? I've never done this before, so I'm not sure how the timing works.

Suze: So obviously she's doing a backdoor Roth, and it's not a traditional IRA. It is an IRA that she's doing a nondeductible contribution to, so she's putting in $7000 into that.

Suze: She isn't going to take a tax deduction for it, and she's able then KT to convert it because it doesn't matter your income you can convert 100% of the money into a Roth and still qualify for that roth. So the question is, do you do it immediately? Listen, when you put it in the non-deductible IRA, just put it in an account that doesn't make any interest for a few days.

Suze: And then when it feels right to you convert it to a back door broth. It's just that easy. It's not a big deal, my dear Maria. All right.

KT: OK, this is from Jerri. She said, hi Suze and KT love the work you both do to help us all with all the cuts to government programs, potentially no taxes on Social Security and Social Security running out sooner than later.

Suze: And that makes a lot of sense. Social Security's running out, so they're going to not tax Social Security, who only helps the rich, not the poor. I just don't understand it.

KT: Wait a minute, calm down, calm down. I was wondering...

Suze: Look at me waving my hands.

KT: Oh, no, she's going crazy now. Anything we talk about with these government programs makes Suze a little hot under the collar. I was wondering if I should take mine at 67 instead of waiting until 70.

KT: We don't need the money right now, but would be better off to take it and put it into something safe in the event that Social Security runs out of money or gets drastically cut. Should I put it in CDs or high yield savings or treasuries?

KT: What should she do? What about an Alliant CD?

Suze: What you have to remember, Jerri, is that from the age of 67 to 70, your Social Security check increases not only by 8% a year, but also by the cost of inflation.

Suze: And it the CPI, the Consumer price index, and it seems like inflation is going up. So you're not gonna be able to meet those returns by a CD or a treasury or anything that's safe.

Suze: However, what is the goal of money? The goal of money is for you to feel secure, and if you feel more secure by taking your Social Security at full retirement age, then you should do exactly that. I do not have a crystal ball. I do not know what's going to happen with Social Security. I do not know what the government is going to do with it. I cannot imagine in my wildest dreams that this government

Suze: would make it that you do not get your Social Security check at 70 under the current laws. I can imagine that for future recipients they change the full retirement age from 67 to 70.

Suze: I just can't imagine it. I also cannot imagine that they're going to cut benefits. If they cut benefits, there will be the biggest revolt in the United States that there has ever been. So I just, I can't believe it.

Suze: But then again, I can't believe a lot of things that are happening. So like I said, I don't have a crystal ball, so you have to do exactly what makes you feel secure. All right.

KT: This is from Clay. Hi, Suze and...

Suze: Did you do that because you like to play with clay?

KT: Maybe, but I...

Suze: Tell everybody how you're a sculptor. What a sculpture. What are you?

KT: A sculptor, and I've been trying to do a portrait of Suze for quite some time.

Suze: Is it called a portrait or a bust?

KT: It's a a bust, but it's a portrait. I'm trying to do a head of Suze.

Suze: Can you imagine trying to do my head anyway? Go on.

KT: It's mostly a lot of hair right now, but, but I'll get there.

KT: I really want to get my daughter her own Roth IRA ASAP, but she's only 3 years old.

Suze: So is she working?

KT: Ready... Does enrolling her in a medical study count as earned income?

KT: So just to give everyone a background, the medical study is through her pediatrician, and it involves simply monitoring her after the little girl receives routine shots.

Suze: And they pay her for that.

KT: Yeah, so it's sponsored probably by a medical group anyway. So that's with...

Suze: Pop quizzy, pop quizzy.

Suze: Does it qualify for a Roth as earned income?

KT: No.

Suze: Why?

KT: Because she didn't earn it.

Suze: Right. So it's taxable, right? KT, but not earned income,

KT: It's not an earned. She didn't, she didn't work for it. She's 3 years old.

Suze: So no, KT happens to be right, ding ding ding dingy. Oh good. There's your quizzy.

Suze: Earned income means you work for it. You can't go to like Vegas and win money.

Suze: And even though that money is taxable, consider that earned income, even though you are pulling down a lever, or maybe you just push a button now.

KT: Or throwing a pair of dice.

Suze: Or maybe you don't do anything. But anyway, so no, you, it does not qualify as earned income. All right,

KT: OK, so Suze, question from Kelly.

KT: Our accountant has determined my husband can contribute 45,000 to his SEP for this 2024 year. Would you still advise this? Part of me wonders if we were better off putting this in an investment account and not contributing to the SEP any longer.

Suze: Let me see that for a second, KT, and see what else she wrote, which is I see he also has $400,000 already in a SEP IRA.

Suze: So if he were to do a backdoor Roth, he would have a pro rata rule. All right, I got it.

Suze: All right, Kelly, you listen to me and listen to me closely now. You should absolutely do the SEP IRA.

Suze: And you don't think about doing a back door Roth with him. You think about just simply taking an amount of money from the SEP IRA and converting it to a Roth. If you now put another $45,000 in there.

Suze: And then you convert that all right, so you pay taxes on that, but you're getting larger amounts of money into your Roth IRA. That's how people get a whole lot of money into a Roth because you're not limited to the $7000 or the $8000 a year. You're not limited by income, so you eventually could get all of his money into a Roth IRA.

Suze: Simply by converting it, talk to your accountant about that. All right, KT, OK you have time for a few more.

KT: OK, I have one from Jennifer. I like this one. Hi Susie and KT love your show. I feel like you're my personal friends.

Suze: We are.

KT: We are, Jennifer. We're your friends.

Suze: Wanna go have lunch?

KT: Well, she's in Raleigh, North Carolina.

Suze: Forget it. OK. All right.

KT: So her dad passed away in 2022, leaving her with an inherited IRA worth $500,000 that's the current value. It's a mix of individual stocks and good companies like Nvidia, QQQ, and a dozen others. I've been taking only the minimum distribution these past two years.

KT: But all must be liquidated entirely within 8 years. If I continue to pull the minimum each year, I'll have a huge lump sum to withdraw in 2032 when I'm 60 years old, which will be taxed as ordinary income. So she's saying she's smart. No, she's smart. Would it be better to take out disbursements evenly over these next years, or should I continue taking minimums?

Suze: Great. So yes, when you're in a situation where you inherit an IRA from a relative, not your spouse, you are a non-eligible designated beneficiary, and all of you should know what that means by now. You have 10 years to wipe that account clean, so you should take whatever amount is in there divided by 10.

Suze: And take out that amount of money every single year so the account really is wiped clean by the end of the 10th year, otherwise you're going to be hit with a tremendous tax bracket but you should also work with a

Suze: CPA, because maybe you'll be in a lower tax bracket in a few years, so you could take out more then than right now. So it's a little tricky, but don't just take out little amounts of money right now and get hit big in 10 years. All right, last one, KT.

KT: OK, this is from Marcie. She said, Hi, Suze, I'm 62.

KT: At my new job of only 6 months, I do not pay into Social Security. Will my Social Security benefit decrease as a result of my last working years being at an employer that does not allow me to pay into Social Security?

Suze: Well, it depends, and because you don't tell us anything about this, Marcie, in terms of, listen, if you don't already have 35 years in, you know, Social Security and and jobs that have paid into Social Security, then yeah.

Suze: These years that you're working that don't pay into Social Security will absolutely hurt you because when you do apply these years are going to be 0000. If you already have 35 years that you've paid into Social Security, these years will not hurt you. If you have not, then they will.

Suze: All right, KT, is that a wrap?

KT: That's a wrap.

Suze: All right, everybody, so I can't wait to see what happens today with the tariffs and um and and I don't even know what to say anymore. All right, so KT take us out.

KT: There's only one thing we want you to remember, and it's this.

Suze: People first,

KT: then money,

Suze: then things,

KT: and you stay

Suze: safe, stay safe, stay strong and just stay on your own path, all right, everybody, see you soon bye bye now.