401k, Home Buying, Roth, Student Loans, Taxes
June 02, 2022
Listen to Podcast Episode:
On today’s podcast Ask Suze & KT Anything, Suze answers questions about Series I Bonds and probate, Roth 401(k)s, real estate and so much more!
Suze: (Music Intro)
Suze: June 2nd
Suze: 2022 Ms Travis
KT: Suze. Do you know what this month is?
Suze: Yeah, it's three days before my birthday.
KT: It's the Gemini month. She can change your mind every day
Suze: I change my mind every day. Anyway...
KT: Her birthday is Sunday, everybody. We're going to have a little party.
Suze: Are we going to do a podcast on that day?
KT: We are. We're going to do a birthday podcast And all of you should send in your wishes before then because I'm going to select a couple of really great birthday wishes for Suze. What do you wish for Suze everybody,
Suze: KT... Why do you think that... by the way before we go into this? Welcome everybody to the Ask Suze and KT
Suze: anything that's anything podcast.
KT: anything, anything you want.
Suze: Except there's something that I have been wanting to tell everybody.
KT: What is it Suze?
Suze: Do you really not know?
KT: No, I don't. I'm not going to guess. What is it?
Suze: All right. Listen to me, everybody.
Suze: The Alliant Credit Union
Suze: has raised their interest rates
Suze: From 0.60%,,
Suze: To 0.75%.
Suze: So all of you that have the ultimate opportunity savings account, you're now going to be earning 0.75%. And if you continue to put $100 a month every month in for 12 consecutive months, you're going to get $100 bonus as well. If you don't have it yet,
Suze: please go to my M Y alliant dot com my alliant dot com and check it out. I promise you, you will be happy that you did.
KT: That's great news. That's good. That's really great
Suze: KT, I have two questions for you. Number one.
Suze: Why do you think? I don't look forward to my birthdays?
KT: You've never ever liked celebrating your birthday. And listen, I've given her some really great parties real fun theme parties. Remember that one in L. A. Yeah that was a great one. Was a western. So
Suze: So why do you think?
KT: I don't know
KT: know. I
KT: don't know you, let's put it this way you don't like celebrating any holiday birthday or special events and you especially don't like being in the center of attention. But does she like to give a party? Absolutely.
KT: She gave me a 50th birthday party. I'll never forget.
KT: She's about to give me a 70th birthday party in July this summer which I know I'm looking forward to every day.
KT: I count
KT: down the days
KT: we're not gonna, I
KT: was gonna say we're going to keep it a surprise. And she also loves, loves, loves to prepare and entertain just one day a year, thanksgiving for the family but she doesn't like them. She just isn't into it. You never were
KT: never have been. Anyway.
Suze: one other question are you as sore as I am today
KT: a little We were fishing, we went fishing for how many hours?
Suze: 10 hours on Tuesday and yes I was on the boat and I was on the boat for all 10 hours.
KT: She fished
Suze: that night on Tuesday.
Suze: when did I go to sleep
KT: 7:30. She came back, we got in at 6:15.
KT: I always come back water my garden, say hello to all the plants then get, because I'm really dirty and stinky. I smell like a squid and I was really, really dirty from fishing all day. Suze doesn't get dirty. She's the captain. El Capitan
KT: has the pleasure of sitting behind the wheel and not getting dirty.
Suze: But I did find the fish,
KT: she finds him, but she fished a little anyway, we caught quite a few nice yellow eyes snappers and that was our supper or dinner. But she didn't even eat dinner on Tuesday night. I came back and saw her and she was in bed
KT: and I said, and she was actually sleeping.
KT: I said,
KT: Suze, Suze, are you, are you sleeping? And she said, oh, I just fell
Suze: asleep Anyway, my body still to this day from that
KT: because we're getting old.
Suze: Getting old. But when you're on a boat you're constantly rocking And as you know, I'm freshly new back to the boat,
Suze: right? So it's
KT: been doing great.
Suze: I've been doing great.
Suze: That all right, let
KT: me get to my questions. But first I have to tell everyone
KT: much. So I wanted everyone to know this could be a really short and precise podcast because what I did was I went through
KT: really quite a few 100 of the questions that came in and lots of them were in the same category or the same topic. So I kind of grouped seven great questions together. I'm not putting the names in.
KT: I'm just going to summerize and ask the question
Suze: because like 34 or 35 people ask the same
KT: thing pretty much the same. And the first one being that it was Memorial Day. I want to start with an army veteran. So the first question is Suze, thank you from a 20 year army veteran and thank you sir for serving and protecting us.
Suze: and all the men and women who do so,
KT: but but here's what he's asking:
KT: I'm trying to get my wife
KT: to purchase I bonds. She doesn't like the beneficiary setup, not a fan of probate. Please help.
KT: So what what advice can you give this great army veteran?
Suze: Here's the thing, everybody, it is true
Suze: that series I bonds which are inflation bonds that you purchased by going to Treasury direct dot Gov
Suze: has two ways only really that if you buy it in your individual name, that you can have a beneficiary or you can have a secondary owner.
Suze: But a lot of you are seriously concerned. What what happens if both of you die at once, KT and I have that problem because we have more of a chance of dying at once because we're always together whether it's, you know a plane or whatever it may be. So
Suze: if you're really, really concerned about that.
Suze: Then remember you can
Suze: open up a series I bond account in the name of the trust
Suze: where the trust owns it
Suze: and therefore if anything happens a trust can't die. You don't have to go through probate.
Suze: But if you want to get more than $10,000 in remember to listen to the April 17 version of the podcast here on women and money. Where I talk about how you can get up to possibly $30,000 into a series I bond
Suze: But listen to give up 9.62% interest right now
Suze: because of that.
Suze: I don't know I would do it no matter what. But anyway. Okay go on.
KT: So Suze that was great advice. His wife definitely should consider getting the I bonds.
Suze: Well you know how many millions of people since I've been talking about it have now gotten them
KT: and they're happy
Suze: and they're really happy
KT: they feel secure and that's the whole
Suze: purpose and so you know if you have to go through probate
Suze: with the amount of money that's in I bonds. Okay. But the truth of the matter is depending on your state, you don't have much there. You might not have to go through probate at all. Alright,
KT: So Suze, in keeping with the same theme of series I bonds which so many people are asking questions
Suze: about which by the way I just want to say something. So many of you are asking questions about series I bonds. Where if you just went to Treasury direct dot gov, they'll answer your questions there, you'll find the answers. So since now so many questions are coming in. Don't wait for me to get back to you be proactive. Everybody go, KT.
KT: I think Suze's advices
KT: Better. But here you go. So this question is Suze, I invested in a series I bonds in November of last year at 7.12%. My statement only shows $178 of interest.
KT: Why isn't it more?
Suze: See that's a question that I have answered in the past. You know the reason KT?
KT: I think because it doesn't start accruing interest until after a certain amount.
Suze: So remember everybody
Suze: Good try KT. Go go KT, go go KT. Oh, I have your quizzie honey.
KT: Right here. Somebody
Suze: by the name of Lisa wrote in and said, this is a quizzie for KT. And I said I'll ask
Suze: her. All
Suze: right. Anyway,
Suze: everybody remember
Suze: in the very first year
Suze: that you put money into an I bond, you cannot touch that money at all.
Suze: But really years two through five, if you do take any amount out, you redeem it
Suze: Any amount. It's a three month interest penalty.
Suze: So when you look at your statements
Suze: anywhere within the first five years of you owning an I bond, they automatically assume
Suze: that three month interest penalty will apply if you're going to withdraw money.
Suze: So they don't want to tell you, you have this much money in there.
Suze: But if you withdraw it, you have less because of that penalty.
Suze: So they automatically apply that three month interest penalty when you are looking at your statements, however,
Suze: you still have all of the interest in there, making interest the next six months. Just know that it's compounding the way that it should, but they're showing it with the interest penalty. Let me just give you an example.
Suze: You put in $10,000 which this person and many did last year
Suze: And got a 7.12% annualized yield. Now remember everybody, an annualized yield is what it would have paid you if you had that money in there for the whole year and that was the interest rate for the whole year.
Suze: But series I bonds the interest rate changes every six months.
Suze: So truthfully, you're only going to get half of that 7.12% or 3.56% actually on your money for six months.
Suze: And then the interest rate changes.
Suze: Now this person or these people are lucky because the interest rate change to 9.62%. So they're going to get a whole lot more but
Suze: 3.56%, on $10,000 is $356 for six months. Since you're getting assessed a three-month interest penalty. If you were able to take the money out,
Suze: That would be half of that $356,
KT: which is which
Suze: Is $178.
KT: But remind them, it doesn't mean you lost that money. Yeah, you didn't lose it, lose it.
Suze: You still have $356 in there.
Suze: So now all $10,356 will be earning 9.62% annualized.
Suze: But again, that's only half of that. So it's about
Suze: 4.81%. There you go.
KT: At the end of the day, you're still making out great
Suze: lots of money.
Suze: and I got news for you after five years, you'll see the actual amount that you have in there,
Suze: You know? And I went through that by the way because remember I've been buying I bonds since 2001 and it was always like wait a minute. But anyway, that's how it works.
KT: So this next question is in again a category for that Good old debt called student loan. The one we all hate
KT: that is necessary.
Suze: You shouldn't hate it.
KT: Alright, we don't hate it. We just know that it
KT: It is never forgiven but ready for the question. If the government forgives $10,000 of student loan debt, will I owe taxes on it?
Suze: fabulous question?
KT: Good question.
Suze: Okay, student loan debt.
Suze: The good news is if President Biden decides that he is going to forgive $10,000.
Suze: Hopefully across the board of student loan debt, that student loan debt will not be taxable. Now, KT, the reason that people are asking that question, fabulous question is because if you have debt that was forgiven
Suze: student loan debt, any kind of debt that's forgiven except public student loan forgiveness debt. All right.
Suze: You then because that debt was forgiven, you owe taxes on that debt
Suze: And that's just the law, but a fabulous thing. And I want all of you. In fact, I should have done a Suzy School on this one in 2021. But anyway, there was in 2021
Suze: American Rescue Plan act that was passed
Suze: and that was the act with the stimulus and all of those things. All right. But in that act, KT,
Suze: They said that student loans that are forgiven through the year of 2025,
Suze: you would not owe taxes on. Now, the reason that's important. Everybody for those of you who are an income based
Suze: repayment programs for your student loans or your children are
Suze: Prior to 2021
Suze: with this act having been signed,
Suze: let's say you had
Suze: A debt at the end of 20 or 30 years that you owed still on the student loan of possibly $100,000 or, so
Suze: the debt would have been forgiven. But you would have owed income tax on it. And that's why over all the years I've been saying, be very careful if you have income based repayment programs pay as you go programs for student loans because in the end they get you.
Suze: So if you have one of those kind of loans between now and 2025,
Suze: if you're out of it, if they forgive it
Suze: you do not owe taxes on it.
KT: So Suze. Next question is this: can you explain why we should open a Roth four oh one K. Rather than a traditional four oh one K? My C. P. A recommends we open a traditional because we make $350,000 a year.
Suze: No I can't.
Suze: How many times I've explained that.
Suze: Look at your little face. Alright, just joking with you, KT.
KT: I was going to say oh man if she doesn't know the answer and asks me to explain that we're all in trouble.
Suze: All right, I'm going to try one more time.
Suze: Here's the thing. Everybody,
Suze: you make too much money to qualify for a contributory Roth IRA
Suze: But there are no income limitations when it comes to a Roth 401K.
Suze: You can make $10 million dollars a year
Suze: And still qualify in most cases for a Roth 401k.
Suze: So if you could take advantage of it, you could put a lot of money into it.
Suze: That money then does what? It grows tax free
Suze: Year after year, after year now. It well I don't know your age but now 10 years or 40 years from now or however long you will probably have millions of dollars
Suze: in that Roth four oh one K. That you could access. Absolutely tax free.
Suze: Your children or your beneficiaries. If you die we'll get the money they'll be able to take it out tax free.
Suze: So why wouldn't you take advantage of that?
Suze: Your C. P. A. Is looking at oh you could save a few $1000 on your taxes right now. If you did a traditional four oh one K.
Suze: Because traditional Iras or 401 Ks are funded with what? Money you have never paid taxes on.
Suze: So if you're not paying taxes on it so you're saving 2,000 3000 maybe $5,000 a year.
Suze: The problem is what do you do with that $5,000 or that $3,000? Do you take that money? And do you invest it?
Suze: No you don't. You take that money and what do you do with it? You go out to eat, you spend it it just goes down the financial river
Suze: it doesn't really work for you. It's not like that money then it's going to be invested and it's going to grow as well.
Suze: So pay the taxes now
Suze: make it so that you never pay taxes on that money again
Suze: because if you have a million dollars or more which many of you do in a traditional IRA or a traditional four oh one K.
Suze: You are going to not only have to pay taxes on that money as you're taking it out in whatever tax brackets happened to be there later on in life.
Suze: And if you die when it goes to your beneficiaries and let's say your beneficiaries are in a really high tax bracket, they're gonna have to pay ordinary income tax on it.
Suze: It's just not worth it.
Suze: You can do it and you can listen to your C. P. A. And I promise you
Suze: years from now when you see
Suze: what you've gotten yourself into oh you're gonna wish you had listened to me. And one last thing
Suze: money that you withdraw from a traditional Ira or a traditional four oh one K. 403 B. T. S. P. Whatever
Suze: that is money that counts towards income to calculate if you're going to pay tax on your Social Security or not
Suze: that is money that is used to calculate what your Medicare B premiums are going to be and they will be higher because of that
Suze: money that's withdrawn from a Roth does not count towards Social Security or
Suze: Medicare B premiums. Okay just say in'.
KT: Suze, ready next question. My spouse died last year and I just sold our home which we lived in for the past 36 years.
Suze: bet we have a lot of gains in that house. Well
KT: It says I'm in my late 80s and I need every penny after taxes I was told I can only deduct
KT: 250,000 from the sale proceeds since my husband died. Is this true, Suze?
Suze: No it is not
Suze: true. That
Suze: should have been your quizzie what would you have said?
Suze: Alright. I have to tell you, I'm really aggravated all of a sudden.
Suze: I'm sorry I'm
KT: picking questions that are making her.
Suze: A Lot of people have written how many people wrote in this one question?
KT: Probably about seven around this category about spouse dying proceeds. What you get what you can keep after you sell your
Suze: home? Here's what really upsets me
Suze: is that I've just had two questions from you K. T. One where your C. P. A. Says it's better to do a traditional than a Roth. Next question. This person has been told by somebody who would that person be probably their C. P. A. That they can't do it. I don't know if it is or it isn't. But it's like
Suze: people be careful who you are getting advice from. That's all I want to say. Because if you believe that person in this situation, you would have lost out on a lot of money
Suze: when you sell a home.
Suze: Every single one of us gets what's called a $250,000 exemption. As long as it was your primary residency
Suze: and you lived in it for two out of the past five years as your primary residency.
Suze: So if you own this house with your spouse or with anybody for that matter, you each get a $250,000 exemption.
Suze: So in this case, KT,
Suze: this woman, if her husband was still alive,
Suze: They sold the house, they would have been able to take off $500,000 from the gain that they made on this house. Okay.
Suze: However her husband
Suze: died a year ago and somebody has told her she doesn't qualify for $500,000 now because she owns it by herself.
KT: Oh I didn't know that.
Suze: And that is wrong because if your spouse
Suze: died within the last two years
Suze: and you said your spouse died a year ago. Last year,
KT: one year
Suze: So if it's within two years of death it was your primary residency.
Suze: You lived in it for two out of the past five years at least as your primary residency, you've lived in it forever.
Suze: Right? 30 some odd years
Suze: You get to claim not only a $250,000 exemption for you, but you also get to claim a $250,000 exemption for your deceased spouse.
KT: What other deductions can she make on the sale of the house?
Suze: Well obviously she can take off
Suze: any amount of money, any amount of improvements that you made? And obviously over all of those years did you put on a new roof? Did you you know, adding a little addition? Did you renovate the bathrooms? What did you do where you added money to that house?
Suze: Right? So hopefully you can go through the house and look at everything and write all of that down. You also get to deduct whatever sales commission you paid to sell the house. And really KT that and the $500,000 exemption is what she gets to take off. Next question, girlfriend.
KT: Okay. And keeping with real estate, lots of real estate questions. I think people are are taking advantage of this crazy real estate
KT: So Suze. My mom told me that her house she owns in J. T. W. R. O. S with my brother. Joint tenancy with right of survivorship was left to me. My sister and brother in her will.
KT: My sister and I are estranged from my brother, which means they do not
KT: talk to
KT: him. But mom says there's nothing to worry about. So then why am I worried Suze?
Suze: Because this person should seriously be worried. Joint tennancy with right of survivorship means
Suze: that she now owns it with her son.
Suze: If she dies, title passes immediately
Suze: To her son. That is on that joint tenancy with right of survivorship because his title
Suze: survives her passing.
Suze: Did that make sense? KT? Right? That's how we own property. We own it within trust,
Suze: but that's still the title to our properties. Okay,
Suze: the problem is when you own property in joint tenancy with right of survivorship, it overrides the wishes of any will or trust.
Suze: So, upon this person's mother's death.
Suze: It will immediately go
Suze: to her son. Their brother,
Suze: he will own it totally in his name alone.
Suze: There's no way for them to contest it.
Suze: That's how it's going to be. And since they are estranged from him, good luck getting him to do anything fairly about it.
KT: So what should they do? Could they have mom change it now?
Suze: They need to have mama listen to this
Suze: and listen to me saying mama
Suze: if you really love your three children totally the same. And if you really are wishing that all three of them get this house and then divide it and sell it or do whatever with it
Suze: then you have got to take it out of the title where you own it as joint tenancy with right of survivorship to one son.
Suze: What you could do is put the other two on there if you want. But better yet really is you should own it in a living revocable trust
Suze: just held in your name
Suze: For your benefit while you're alive and your three kids
Suze: after you have died.
Suze: The one danger that you have by owning it with your son
Suze: is if your son is in a serious car accident, it was his fault
Suze: he either killed somebody
Suze: or seriously injured them. Don't think that an attorney isn't going to find out that he owns a piece of property and come after your house
Suze: in a lawsuit. So one last thing, KT I know you want me to be quick here.
Suze: Do not own your home with your kids names on it. Everybody there are more ramifications than you have any idea including step up in basis and all of these things own your home in a living revocable trust.
Suze: And that is the best way to do it. It's for your benefit while you're alive and getting your kids benefit
Suze: after you have passed.
Suze: The best way to do it is to go to Suze Orman dot com slash offer and pick up our must have documents. Seriously.
Suze: It's what you all should be doing. Okay go on.
KT: Okay next question is simple. Our Treasuries insured up to 250,000 like banks and credit unions are?
Suze: That's cute.
Suze: No they're not insured up to $250,000. Like banks and credit unions are
Suze: but they are backed
Suze: by the full faith and authority of the United States government.
Suze: So you could put in $10 million dollars into a treasury
Suze: and be absolutely guaranteed to get that money back no matter what.
Suze: So Treasuries
Suze: are guaranteed by the full faith
Suze: and authority of the United States government. And money that you put in a bank or credit union
Suze: are backed by F. D. I. C. Or N. C. U. A. For credit unions up to $250,000. But I did do a podcast on this where it showed you how you could get far more than $250,000 with F. D. I. C. Or N. C. U. A.
Suze: Quizzie time KT,
Suze: are you ready, KT for your quizzie?
KT: I'm always ready for that quizzie Suze
Suze: All right. Now, KT,
Suze: I just want you to think before you answer right? Because I kind of answered it like 15 minutes ago. Okay, now this is from Lisa
Suze: and Lisa says hi KT and Suze,
KT: is it a Lisa we know?
Suze: no it is not.
KT: We have lots of "Lisa" friends.
Suze: I listened to your podcast religiously.
Suze: Now she listens to it every single time we have one. Alright, KT, but she's asking a question
Suze: that I've answered so many times. It's not even funny. So this is a topic that's not easy to get.
KT: Let's give it a shot together Lisa
Suze: and she loves taking action on my advice. Alright, I've got a good quizzie for KT and her dreaded Roth.
Suze: I'm 35 years old and I'm proud to say that as of this year I am maxing my Roth four oh one K. My question will there come a point when I'm older, say in my fifties or sixties when it would make more sense to switch my contributions
Suze: To a traditional 401K. If I don't anticipate going to a higher tax bracket
Suze: or should I always stay in a Roth? Now KT, Don't you don't answer yet,
Suze: let everybody think about it.
Suze: I want you to think about it because not only when you answer, I'm going to ask you why
Suze: you answered that way. So I want you to just take a second. You tell me when you're ready.
KT: I think I'm ready.
Suze: Alright, I am rooting for you girl. I'm rooting for you. What's the answer?
KT: Definitely keep your Roth. You don't need a traditional. Why not let all that tax free money compound and enjoy it
KT: in your later years
Suze: So your answer to this question is
Suze: right, should she always stay with a Roth? Ding ding ding ding
KT: ding ding ding ding ding ding, baby.
Suze: And again. Why?
KT: Because it's tax free
Suze: and it grows
KT: and it compounds and grows
KT: until you're ready to use it and want it.
Suze: And how does it grow?
KT: Tax free, Suze.
Suze: And what happens upon their death? And it goes to their beneficiary is
KT: still tax free for whoever you want to leave it to.
Suze: Alright, So
Suze: the answer,
KT: It's the best way to go. Go keep the raw, enjoy it. And
Suze: and no matter what?
KT: No matter what, just keep it.
Suze: There you go now. Did you get that? How does that feel?
KT: Feels good Lisa You can do this. You know the answer. Just keep the Roth.
Suze: All right. So on that note, KT, we better
Suze: sign off. That's a good note.
KT: If you keep that Roth, you're going to be safe. Strong and secure
KT: Till next Sunday till this Sunday. Suze's birthday send in the birthday wishes. I'm going to read a few of them. I'm going to join her and wish I'm going to join her all day for that celebration. But we're going to start the morning with some of your wishes.
Suze: All right.
Suze: And so until then there's only one thing that we wish
Suze: for all of you and that is for you to be safe,
Suze: and secure. See you then.
KT: Bye bye.
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