Podcast Episode - Ask KT & Suze Anything: I Want to Give Money to my Grandchildren

On this edition of Ask KT and Suze Anything, Suze answers questions about bankruptcy, giving money to your loved ones and portfolio suggestions.  Plus, two pop quizzys about being generous and so much more!

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Podcast Transcript:

Suze: July 18th, 2024. Welcome everybody to the Women and Money podcast.

KT: And everyone smart enough to listen.

Suze: This is the...

KT: KT and Suze...

Suze: Ask Us Anything podcast, right? So, what should we talk about today?

KT: Well, I have a really nice email that came in that kind of sums up what we do. Can I start by reading that?

Suze: Since when have you ever had to ask me permission to do anything?

KT: It’s not a question, everybody, but it’s just a comment and I really like it. It seems very appropriate for the times we’re in right now. So let me read it. KT and Suze, your wisdom in finance and life is admirable. First, this is from Dee. Dee, I need to make a little correction here — Suze’s wisdom in finance and KT’s zest for life. The way you explain topics of finance is easy to understand. One phrase that just clicked with me that Suze always said when she was on The Suze Orman Show was “Hope for the best, but plan for the worst.”

I have lived by these words ever since. I had considered myself a negative person, always expecting the worst to happen. But after hearing that phrase, I changed my mindset. Now I live by it — not only with my finances, but in other areas of my life as well. I can hope for the best and still have a plan just in case something unexpected happens. That truly gives me peace of mind.

Suze: Why did you choose that one? I think I know why you chose it, but let me see.

KT: I think what popped out for me and what kind of connected was “the unexpected.” We just experienced a terribly unexpected, tragic event.

Suze: Tragic for all. And our hearts go out to everybody that was affected by it, which is probably every single person in the United States, possibly the world. But especially to those who lost their lives, the families of those who lost their lives, and those who are critically injured. Such a shame for everybody. All right. But you have a question for me.

KT: I do. So I’m going to start with the easiest question of all time, everybody. This is from Paula. She said, “Suze, where should you keep important papers you need to get to your family in case you get sick?” Well, there you go. Must-have documents, baby.

Suze: Yeah, but where do you keep them, KT?

KT: We keep them in our protection portfolio.

Suze: Which is a waterproof, fireproof box that we keep—

KT: Actually, we have two.

Suze: So Paula is who wrote in. Here’s what I would tell you. Many people suggest that you keep it in a safety deposit box, and that is where you store documents, and usually that is at a bank. However, you need to have a family member that you trust — they need to have access and know the location of that box, the key or the code. That’s one place, not my favorite place to do it, just so you know, but many people, that’s where they do it. You also could have a home safe — it could be a waterproof and fireproof safe at your home. It has to be both because you never know when a flood can happen or fire can happen. So wherever you keep it, if it’s a safe, provide the combination or the key to that trusted family member.

Now, personally, I don’t think it has to be in a locked safe. I think if you simply had a fireproof, waterproof box like KT and I have — we call it the protection portfolio because it protects our portfolio of items that our family needs to have — they can just grab it. They know where it’s kept, they can get it anytime they want, and there’s really nothing in there that people can’t see. It’s not like it has to be locked up. Usually I would suggest that you share that information with your family members — unless you’re doing something with the money that you don’t want your family members to know about because they’ll disagree with you or whatever — share copies with them so at least they have copies of what you have. But you have to have the originals, just so you know. You also can have digital copies. With the must-have documents that we’ve always talked about, they’re stored online for you as well, so you can give the passcode or whatever to your family members. You can store it online. At least you’ve gathered the documents that you need to have. So therefore there are all different ways to keep them safe and sound. Just let your family members know where they can go to get access to that immediately if they need to.

Also, wait, I just have to say one more thing. The reason that we keep it in a protection portfolio that we can grab and go is that in case of a hurricane, in case of a fire, in case of anything, you can just grab it and go and take it with you if you like — a little suitcase. So that’s just something that you might want to look into. All right. That was an easy question, but a long answer, right?

KT: Yeah. All right. Next is Maureen. “Hi, Suze. I need help and guidance. I am 60 years old and left a relationship 1.5 years ago that afforded me a financially comfortable lifestyle. I’m employed but live paycheck to paycheck. Unfortunately, I used credit cards to supplement my income and frankly to bury my head in the sand. I am now drowning in $28,000 of credit card debt with no way out. I’ve added additional work to my schedule for extra income, but I continue to sink due to the accumulating interest. I’m exploring filing for bankruptcy or a debt relief program. I feel ashamed, stressed, and hopeless. Suze, what do you recommend?”

Suze: Maureen, Maureen, Maureen… The reason I say that in that tone — Maureen, Maureen, Maureen — isn’t because you have $28,000 of credit card debt. It’s because you choose to feel so horrible about this credit card debt. You choose to use words such as “I feel ashamed, I feel stressed, and hopeless.” It is those three words that keep you underwater in your own self-esteem, in your own self-worth. When you feel less than, it’s very hard to get your strength up and be as powerful as you were born to be and get yourself out of this situation. A year and a half ago, when you were 58½ years of age — because you’re now 60 — you left a relationship. You had the strength to leave a relationship that had afforded you a very comfortable lifestyle. You chose self-power, you chose self-freedom over money. Now you’re allowing debt to take away your strength, how you feel, and what you should do about it.

You can obviously look into bankruptcy because they say when you owe more than what you make, you are essentially bankrupt. But with $28,000 of credit card debt, I have a feeling that this amount of debt is something that you can get rid of on your own without claiming bankruptcy. What I want you to do is contact NFCC.org — that is their site, which stands for the National Foundation for Credit Counselors. I want you to go online, contact them, and they will help you work out a program that is manageable for you to hopefully get out of debt within a five-year period of time. But the most important thing that I can leave you with is you are to stop feeling ashamed. Shame is one of the major internal obstacles to wealth — fear, shame, and anger — and you kind of have all of them. So therefore, don’t feel hopeless. Did you hear the first email that KT started this podcast with? Plan for the worst, but hope for the best. And now she doesn’t feel hopeless anymore, even in her own life. You have got to stop feeling hopeless. If I were you, I would create a new truth for myself: “I am a powerful woman with no credit card debt.” Every time you get afraid, every time you feel like you are drowning, what are you gonna say, Maureen? “I am a powerful woman with no credit card debt.”

KT: I am a powerful woman with no credit card debt.

Suze: And you are to say that 25 times a day.

KT: I’m a powerful woman with no credit card debt.

Suze: You are to scream it!

KT: I am a powerful woman with no credit card debt!

Suze: You are to say it silently in front of a mirror before you go to bed.

KT: (Whispers) I’m a powerful woman with no credit card debt.

Suze: And you are to write it 25 times a day every single day.

KT: I have a sore hand.

Suze: Until you have a sore hand. Can you try that for me? All right, KT. Next.

KT: Ok, this is from Angelo. I love when I get an email from a man — I like this, Angelo. “Hi KT and Suze. I had invested in the portfolio that you had suggested a while back. I was wondering if you were going to update it again. Much love, Angelo.” So what was in that portfolio?

Suze: So everybody, right — if you go back to, I believe it was the January 7th podcast, you will see that I answered a question for somebody who wanted to know: if all I had was $1000 — actually, it would have worked if you had $10,000 or whatever — but if all I had was $1000, what are some ETFs that you would invest in? And I gave seven ETFs at that time. Now, if you looked at them today, they are up approximately 13% since January 7th. But I’m going to make you do your homework and go back and look them up. So Angelo, no, I’m not going to change those at this point in time because they give such diversification in every area. It was really, at that point in time, one of the perfect portfolios. But for those of you who did not buy that portfolio back in January 7th, I don’t know — it’s had a very nice run, all very good. So you’re gonna have to decide on your own now if you want to do it. But those were recommendations for the first week of January. All right. Go on.

KT: I like this next question a lot. It’s from Cheryl. She said, “Suze and KT, I’m looking for advice on how to open a brokerage account for my four grandkids, ages 7, 5, 2, and two months, so that we can start putting money in for their futures — hopefully retirement futures. And Suze, the reason I really like this, she said, my husband and I are both retired and want to help secure their futures instead of wasting money on junk.” Now that is a smart set of grandparents. Instead of spending money on things that are silly or whatever, they want to help secure their future.

Suze: So it depends really how much you’re thinking, Cheryl, of putting in the account for these young ones — 7, 5, 2, and two months. Here’s what you have to think about. If you open up a Uniform Gift to Minors Act account or Uniform Trust to Minors Act account, that’s money that is theirs. And once they turn of age, they can do anything they want with this money. So while you want to secure their future, when you put money in an account in their name while they are minors, you are custodian on that account while they are minors. But as they turn of age, it is now their money, and they can do anything — like I just said a second ago — with it. Why did I repeat that? That isn’t necessarily securing their future because you do not know that little Johnny or Jane Angel doesn’t turn into little Johnny or Jane Devil when they get older.

And the reason that I say that is that when I was actually seeing clients and they had done that, a lot of people would come to see me and they would say, “Suze, we put a lot of money in a UGMA account for our kids thinking that they would like to have that account. Number one, it hurt them for financial aid, which is something you should know. But more important than that, they now want that money. One has a drug problem and is now using that money for drugs. Another wanted to take the money out and buy a car and absolutely refuses to listen to me.” So you lose control over that money whether you know it or not. Is there a way not to? So what I would be doing is not giving them the money now. I would open up a side account and keep it in your own name, knowing that that amount of money is for those kids. I would then create a trust where there are instructions in the trust as to when those kids can get the money, who is gonna be the trustee for that money if something happens to you. Then you could control that money up until a certain age. You’re not limited by the UGMA rules, and it doesn’t hurt for financial aid. So I would just think twice about what you want to do.

KT, if we had kids — and in fact we do, our nieces and nephews — we would never allow that to happen. You want to set up a 529 account. We are the owner; they’re the beneficiaries, ok? But not a UGMA account. No way, given what I’ve seen. All right, go on.

KT: Next question is from Jean, and her comment and question are about giving money to her beneficiaries now versus leaving it after she passes. “The financial advisor suggested I start reducing my IRA above the RMD, putting it in an account to be inherited after death.”

So then the question is, “I think I should start withdrawing beyond the RMD and gifting small amounts now. What would be your advice? I seldom need my entire RMD.” So Jean financially is very comfortable and wants to start giving money to her beneficiaries before they’re in their fifties and seventies.

Suze: Pop quizzy.

KT: Oh, what is it?

Suze: This is your quizzy.

KT: Ask me the question.

Suze: Should Jean start gifting money above the required minimum distribution from her IRA — like her financial advisor suggested? Would you start doing that now, given that she has approximately, if she’s taking RMDs, anywhere from 17 to 20 more years left on her life?

KT: So the question is, do I agree with her and the financial advisor?

Suze: Would you be gifting money above the amount that she’s required to take?

KT: No. I would actually gift money from the RMD amount because at the end of her email, she said she rarely even needs the RMD at this point in her life.

Suze: But she’s thinking about gifting far more than that.

KT: My answer is I wouldn’t take money out over and above my RMD.

Suze: You would not?

KT: No, no.

Suze: All right. So I would use the RMD money to gift. All right, so I don’t know whether to approve you or deny you.

KT: You have to approve me. That’s smart. She’s not using it. She has to take it out.

Suze: All right, so…

KT: Use it, gift it, gift it.

Suze: All right, I’ll give you a ding, ding, ding (bell rings) only because Sunday is your birthday and I want you to be in a good mood for your birthday. However, the financial advisor suggesting this should have made an even better suggestion to you, which is — if you’re taking money out as a required minimum distribution, it means that this is a traditional IRA and not a Roth because there are no RMDs for a Roth, number one. So any money that you take out as a required minimum distribution, obviously, you pay ordinary income tax on. Your advisor wants you to take out even more above that amount, which means you would have to pay taxes on it and either give it to your kids or grandkids now or put it in an account for them.

What I would tell you to do, if that is what you want to do — you should take additional money out above the RMD, no problem, but you should convert it to a Roth IRA in your name. You should let it grow tax-free, because at that point, then if anything happens, you have access to that money. If you don’t need it, it gets to grow and grow and grow tax free, and later on if you need more money — because you say here, “I seldom need my entire RMD.” Seldom isn’t “I never use my entire RMD.” So it’s close there. What I want you to do is not gift any money to your kids and grandkids right now whatsoever. KT is shaking her head.

KT: I totally disagree.

Suze: I don’t care. What you need to do, which is smart — because you now are obviously 73 — do you have long-term care insurance? Do you have the ability to hire a private nurse as you get older if you want one? You do not know what your life is going to be at 83, at 93, at 97, which is when my mom died. You don’t know what your expenses are going to be, Miss Travis. So therefore, your kids can get this money when you die, in my opinion, and that I want to know that you are OK.

So I would be taking extra money out of my IRA after you’ve withdrawn your RMD from this IRA, and whatever amount of money isn’t going to put you in a much larger tax bracket, convert that money to a Roth, keep it there, and then make the grandkids and the kids the beneficiaries of that upon your death. That’s what I would do. Now, what is wrong with you that you are disagreeing with me now that you heard my total explanation?

KT: Well, it makes sense what you just said. So I agree with that. But sometimes it’s nice to give the kids a little something.

Suze: She can give them a little something. But if she has to take money out of her IRA to pay taxes on it, then why should she be paying taxes on it to give to her kids when, if she’s paying taxes on it, she could put it — by converting it to a Roth IRA — let that money grow and grow and grow for the next 17 years, and then upon her death, there’s going to be a tremendous amount of money to leave to the kids tax-free. Far better idea than giving it to them now. Are you kidding?

KT: Give them a little money. Give them a little something.

Suze: All right, go on. Wrong answer on the quizzy.

KT: Pop quizzy. This is from Sabrina. “Suze, hello. My husband rolled his 401(k) over to a brokerage firm seven months ago when he left his job. Can he move this money back to his new employer 401(k) or is there a waiting period? It’s traditional.”

Suze: Pop quizzy.

KT: The answer is yes.

Suze: Oh, you’re so good. How do you know that?

KT: Because you can always roll over, Beethoven. (Sings) Roll over Beethoven. Remember that? You can always roll over.

Suze: Do you remember Uncle Nady and Aunt Thelma’s birthday last Sunday? What would Uncle Nady’s thing be? “I had a roll with honey in bed last night.” Anyway, forget everybody. But my uncle loved my Aunt Thelma.

KT: Oh my gosh, he flirted with her till the day he took his last breath. He was madly in love with Thelma.

Suze: It was such a great saying. He would love to say it and Aunt Thelma would give him a look like, “Oh, here we go again. Last night in bed I had a roll with honey.” I had a roll with honey. OK, what else you got?

KT: All right. I have one more. This next question is from Chewy. “Hi KT and Suze. My husband and I have been long-time watchers of your show through our twenties and thirties, and now in our forties, we’re happy to find your podcast.”

Suze: Yes. For all of those that weren’t lucky enough to see The Suze Orman Show, go to Freevee and you can see all the episodes there for free.

KT: Hundreds of episodes. They’re great. They said, “I listen every week. It helps me get my steps in. Unfortunately, early in my career, despite maxing out my 401(k) match, I was given the poor advice from our head of HR not to do a Roth because I’d be in a lower tax bracket when I retired. Now we each have close to $2 million saved thanks to you, Suze. But a lot of mine is still in a traditional 401(k). Given we’re in a high tax bracket and we’d be taxed at that high bracket on the money converted, is it better to leave it in the traditional 401(k) versus converting? My husband and I are 45 and hope to retire in 10 years.” That’s from Chewy.

Suze: Chewy, Chewy, Chewy, Chewy, Chewy. I will always tell you—

KT: (Singing to the tune of “Sugar, Sugar”) Chewy, Chewy…

Suze: What are you singing?

KT: I feel like singing today.

Suze: What else do you want to sing to everybody?

KT: That’s good. That’s all.

Suze: Come on, come on. Do you know everybody, that I’ll walk out some mornings and there’s KT and Colo possibly making breakfast together, whatever it is that they’re doing, and they’re singing together. What’s a favorite song you sing?

KT: The favorite song Colo and I sing is from Bruno Mars. (Sings) “Should have brought you flowers when I had the chance…” Now wait, I have a cold still, everybody.

KT: I don’t have a cold, but it’s my voice.

Suze: And I told them all that. You feel great. When I walk into two people singing off-key just like that, having the best time chopping vegetables, flipping things — you know, hamburgers, whatever it is they’re making — and I just shake my head and go, OK.

KT: Colo is my sous chef when we’re not working.

Suze: All right. So anyway, KT’s in the mood to sing today. I hope you all enjoy that. I hope we don’t get sued from those companies, but anyway, I don’t care about what anybody else has told you, what any other advisor tells you — what Suze Orman would tell you at the age of 45. I would absolutely be converting some of this money right now to a Roth 401(k). I would absolutely be understanding that over the years till I probably need this money — if you’re going to retire at 55, hopefully you’re going to have enough money in other places that you don’t need this money so that you can actually access it tax-free when you do. Remember, if you leave this in your traditional 401(k), required minimum distributions do not start until you are 75. Now think about, given how much money you have in a 401(k) today, how large your RMDs are going to be. Are you kidding me?

You have got to start converting now to a Roth 401(k) if you can. You could do a backdoor Roth, but your job is to get as much money as you possibly can into a Roth 401(k). That’s what I would be telling you. Why did your husband listen to me and you didn’t? Just saying. All right, KT, you don’t get a quizzy now because you already had two quizzies.

KT: I didn’t get them right. But I always hope for the best, Suze.

Suze: You do hope for the best, and I’m sure Jean hopes for the best as well — who is the woman who wants to give money to her children. I’m sure that’s true. But you know, you have to plan for the worst. You have to hope for the best, plan for the worst, just like you opened this podcast with Dee. All right, so—

KT: Until Sunday.

Suze: Tell everybody what Sunday is?

KT: (Sings) Happy birthday to me, to me. Happy birthday, dear KT and twin Lynn—

Suze: Who will be here.

KT: Happy birthday to us!

Suze: What are we going to do on that birthday?

KT: We’ll do something fun. I want to take my sister fishing. I hope the weather’s nice.

Suze: All right. Question is, what should the podcast be on your birthday?

KT: Oh… Two is better than one. Let’s make the title “Two is Better than One.”

Suze: Yes, $2 is absolutely better than one.

KT: Absolutely. Two is better than one, baby. Coming up on Sunday, July 21st.

Suze: All right. So for all of you, there’s really only one thing that we want you to remember when it comes to your money. What is it, KT?

KT: People first, then money, then things.

Suze: So if you do that and stay safe, you will be unstoppable.