Podcast Episode - Ask Suze Anything

Credit Cards, Loans, Roth IRA, Social Security

October 29, 2020

Listen to Podcast Episode:

In this “Short & Sweet” podcast of Ask Suze Anything, Suze answers questions from Women & Money listeners selected and read by KT. We hear from Susan, Erika, Erica, Alicia, Christina, Rosie, and more.

Podcast Transcript:

Suze Orman’s Women and Money podcast is proudly sponsored by credit unions; a safe home for your money, rain or shine. All right, October 29, 2020, and welcome to the Women and Money podcast as well as the men smart enough to listen. Suze O. here, and KT. You're getting your cue just right there, KT, you come in just right. And this is, today, Ask Suze Anything, and this is where you write in a question via the Women and Money app that you can download on Apple App Store or Google Play, search for Suze Orman. You ask your question there and if chosen by KT it is answered on this podcast, and you never know when I will answer you directly. Today's podcast, KT, let's call it "Short and Sweet." That's exactly what you're going to get because I picked, really, I tried to select short questions. Short ones, all right. Should we apologize for last Sunday that we couldn't... Yeah. So, what happened was also, Suze, someone posted that because of rain, we didn't have rain, we had a massive storm. Someone told me that one of your social accounts said that because of rain, you had to cancel the podcast. But it was a big, big storm. You have to remember, everybody, we do live in the middle of the ocean on a very tiny island, and there's very little communication on this island. And as soon as there's a rainstorm or especially a storm like a semi-hurricane or something, no way can we transmit out. So we're so sorry about that. But all of you, did you see us go live the other day? You know, two days ago we were sitting outside and KT said, let's go live on the Women and Money community app, and that's this little feature where all of a sudden we push a button and we're live to everybody. And there was KT and Colo. And we didn't tell anybody. It was right before lunch and Colombia, our houseman that lives with us, he's like our son was sitting there and we were talking about fishing, and I said, Suze, go live. But Colo, who's very, very, very camera shy, did not know what we were doing, and he was caught there and had to play along. And he's so cute. If any of you want to see what he looks like, go to the Women and Money app, it's still there, it's posted on the wall, and he's the cutest thing. All right, all right, we'll stop babbling and go on, girlfriend. OK, so the first question is from Susan. I received $10k as a gift, should I invest or put it in high earning savings? KT, what made you choose that question? Short and sweet, baby. But wait, wait, really, we need to learn from this question? How is it possible that I could tell her what to do with $10k? So this actually is a good question that you chose, because it's a learning question. I cannot answer a question like that if I do not know how much credit card debt you have. Do you have an eight-month emergency fund? Do you owe anybody money? I don't know anything about you, Susan. And that's how you get yourself in trouble. You go into a financial advisor and you say I have $10k to invest. And they say to you, oh, buy a universal life index policy or something like that, and you say OK. You need an adviser that asks questions before they tell you what to do with money. And so, I can't answer that question for you. Next question. OK, Suze, the next question is from Erika. I had a car loan that I co-signed for someone that was defaulted on and the car was repoed. It is severely impacting my credit. I want to sue this person for the amount and my question is what steps would I take to resolve this issue? Should I pursue the person and try to settle with debt or leave it as it is? There is a lesson here. Oh, Erika. KT says that because for years, for years, and years, and years, and years, the number one thing that I have told all of you to never, ever, ever, ever do is to co-sign a loan. I don't care if it's for your spouse, I don't care if it's for your children, I don't care if it's for your mother, your sister, anybody. You do not do it. So, Erika, your credit has already been ruined, you're not going to get back your credit because you're going to sue this person. If this person doesn't have the integrity to pay for what you helped them with do you really think that they're going to come up with money to pay you in a lawsuit? Even if you win, you could take him or her to small claims court, but if I were you, I would just take it as a lesson learned and that's that because I doubt highly you'll get the money back. OK, next question. Hi, Susan. KT, you guys are just adorable and I love it. I'm a single mom trying to start building generational wealth and a healthy credit and financial foundation for my now three-year-old daughter. I'm so grateful for your labor of love because I'm learning all of this on my own. I'm almost 40 years old with no family history to stand on, so your podcast and books have been a godsend. Here are my questions. I'd like to add my three-year-old daughter as an authorized user on my credit cards to start building her a strong credit history. Should I wait until she's older or do this now? Or, should I wait until the balances on them, I only have two, are at zero before I add her? Or, is any time best? Thanks for taking the time and for all you do to help us. Erica. Are you just choosing emails today with the women by the name of Erica? Alright, so, Erica, here's what I would say to you. Number one, I love that you want to start building a credit history for your child. And it is true that if you add her name to all of your credit cards as an authorized user, then your credit score will become her credit score. But you have to be very, very careful because if you all of a sudden start missing payments, something happens to your credit score and it goes down, you're going to ruin her credit score as well. So, just remember that it doesn't matter if you wait until the debt is paid off or whatever, as long as you pay your credit cards and your bills on time, that's all really that matters. And, you don't use up more than 30% of your credit limit you should have a good credit score, and so will she. All right, good, good answer Suze. What makes an answer good? Why do you say really clear and short and sweet? That makes them really good. I love that. People can remember everything you told them. All right, all right. Ready? Next one is from Alicia... Wait. Do you know what it's like living with her when you love to just expound on things and make sure everything is clear, and I always see her like when I'm giving a TV interview... Wait, I give Suze this wrap signal. If we do a live thing together, what's it called? A wrap. No, no, no, no. If we do a live streaming, live stream, I'll show you all what the wrap looks like. And then I'm going to demonstrate what Oprah's rap used to look like that Dean did on the floor, the floor of the stage. It was unbelievable. We always thought he would take off like an airplane. All right, ready? This is from Alicia. Hi, Suze and KT. When my ex-husband died three years ago, someone at the Social Security office said I could start collecting his Social Security When I turned 60. I'm 54 now, and then I can switch to mine when I turn 70 and received the maximum amount. Is that true? Something I heard in your book, Suze, made me think they were mistaken. No, social security is not mistaken, you were listening to something else when I was referring to that. But, widow benefits are very, very specific. As long as you were married to your spouse for at least nine months before death, you absolutely qualify for survivor benefits. So in your case, at 60 you can absolutely if you want to, start survivor benefits and any time thereafter you could switch to your own. Hopefully, if you didn't need them, you would wait until you were 70 to switch. Just know that as long as you don't get remarried before you are 60 you can still qualify for those survivor benefits. If you get remarried 60 or after, you can still qualify, but do not get remarried before 60 if you want survivor benefits. The next one is from Christina. Hi, Suze. I just opened a UGMA and UTMA custodial account for my 17-year-old son through TD Ameritrade. I am managing the account for him until he turns 21. I'm not too sure if this was the right account to open for him. Please advise if this was the best stock account for him, and if not, which type of account do you recommend? All right, so what's the UGMA and UTMA? So, KT and everybody else listening, a UGMA account is a Uniformed Gift To Minors Act account. A UTMA is a Uniformed Trust To Minors Act account. Normally, with a UGMA, once the child turns 18 years of age, it is their money. Usually, with a UTMA account, it's not until 21. The problem with opening up one of those accounts for your child is that if your kid is going to go to college and they need financial aid, any assets in a UGMA or UTMA account really hurt their chances for financial aid because it counts differently because it counts at almost 35% against what they would get versus if you had a 529 plan for them it would only be like about 6%, but that's beside the point. If the child has earned income and you need earned income for doing what I'm about to tell you, I would have them fund a Roth IRA before I did a UGMA or UTMA account, absolutely. Because especially if they want to invest in stocks, you want them to be able to leave that money in a place that will be tax-free for the rest of their lives that they follow just some simple rules on it. So, yeah, I think they should be doing a Roth IRA, again if they have earned income, versus a UGMA or a UTMA account. KT is going to roll her eyes at this one again, but here's what you need to know. When you invest for a child or anybody, for that matter, in a Roth IRA, they have to have earned income. What does that mean? It means they have to have earned a job, somebody is paying them to do a job of some kind, and the maximum they can put into a Roth IRA under the age of 50 is $6k a year, or 100% of their earned income, whichever one is less. So, if this kid happens to only earn $3k this year, the maximum that he or she could put into a Roth IRA would be $3k. If they earned $20k the maximum they could put in this $6k. So, $6k or whatever you earned in income, whichever one is less, is the max you can fund a Roth IRA with. From Rosie. Good morning, dear Suze and KT. Is there a way I can avoid paying capital gains tax on the sale of my house other than live there for the last two years? It's being rented right now. Thank you so much. Oh, Rosie, the answer to this question isn't going to be so rosy for you. First of all, you have to know that as long as you lived in a home as your primary residency for two out of the past five years, so five years ago you could have lived in it for two years and then rented it for the past three. You still would qualify for the home exemption for a primary residency, which is, if you own it in your individual name and you sell it, you get a $250k exemption above your purchase price and any improvements that you added to that. If you own it with somebody, you each get a $250k exemption as long as it is your primary residency for two out of the past five years. So maybe, Rosie, since you only rented it for the past two years and you lived in it for three years before that, you could still claim that exemption, and you might not owe any capital gains tax whatsoever. If that is not the situation, there is no way around that unless you sell it as a rental. Just pay the tax. This is from Tess. Hello, Suze and KT. Can you please recommend good identity theft insurance companies? Also, any advice on what coverage to look for and the reasonable monthly payment? Thank you for everything you do.I have to tell you, um, the best way to lock down your credit and the most cost-effective one is to simply freeze all three of your credit reports. That way, no matter what anybody tries to do, they cannot get at your credit, they can't steal anything, they really can't get in there to do that. Hi, Suze. I have a 401k from a past job that has $10k in it and I have a 403b at my current job as a public school teacher. I am 40 years old and not married. I just listened to your podcast on Roth IRAs but I'm a little confused still about what's best for me. (You're not the only one.) Should I not only convert my 401k to a Roth IRA? I know I will need to pay taxes on this. Should I do it now or keep it as it is and just open up a contributory Roth IRA and start contributing to that. Please advise. I love your podcast, I'm reading your book for the first time, and I'm learning so much and already making changes. Help her Suze. This is Jen. Just tell everybody why you're laughing, KT. Because Jen, your not the only one confused. I said to Suze that if we had a son, I'm going to call him Roth. Unbelievable this whole business with these Roth accounts, there are so many different ways in and out, back door, side door, front door. I mean, you name it and Suze's got a Roth for you, so here you go, answer Jen. All right, let's Roth and roll here, KT. If I were you and I had $10k from a past 401k, what I would do is I would convert half this year right here and right now into a Roth IRA. And I would convert the other half next year, so divide it up so you're not getting that big of a hit on your taxes next year, into that converted Roth IRA. And then the money would be in there as long as you have the taxes to pay for that conversion. Besides that, you can also do a contributory Roth IRA with new money so you can have both. And one thing that you should just understand is that you only need one Roth IRA, you don't need a contributory Roth IRA, where you contribute money every single year and a converted Roth, where you've converted it from something, an IRA rollover... No, you can open up one Roth IRA at one discount brokerage firm and do everything into that one account, and they'll keep track and you have to keep track as well, how much of it is converted, how much of it is contributory, how much is a backdoor? All of that, you only need one Roth IRA. All right, here's one, here's a short and sweet one. Hey, Suze, should I continue to donate to two charities monthly when I'm trying to get my credit card debt to zero? I donate $50 a month and I have about $9k in credit card debt. What do you think I'm going to say, KT? Well, I don't know. I know how much you love charities and being charitable and giving and how that's important for someone's soul. So, I think you're going to tell her to keep doing what she's doing.Here's the thing. There's a law of money which is you have to keep your hands open to receive that which is meant to come your way. And so many times when we don't have any money, we go through life with our hands clenched in a fist to try to hold on to the little that we think we have. And I'm sitting here right now clenching my fists, right, KT? And if your hands aren't open to receiving that which is meant to come your way, you're going to miss a lot that's out there, you're not going to be able to catch the magic that's waiting for you, the financial magic. And money always has to come in through your hands but it has to go out through your heart. And the best way for you to stay open to receiving is by giving money away every month. I actually think it should be the first thing you do at the beginning of every month. They used to say write a check, but nobody writes checks anymore, but give it away. Maybe $50 is too much for you. I don't know, it just depends. But I have to tell you, I would continue to donate that $50 a month and just watch what happens. But do it with joy, do it with a generous spirit, and do it with a courageous one as well. True. All right, ready? This one's from Julie. You're going to like this, Suze. Julie, I did this just for you. On your podcast when you discussed how to do a backdoor Roth, you recommended waiting four to five months from the time that the money is added to the traditional IRA to the time that it is converted to a Roth IRA. Why do you recommend waiting? The truth is, KT, if I didn't think it would freak them out and you out as well, I would have them wait at least 12 months and the reason is this. When they did the Roth IRA and gave you the ability to convert regardless of income, they were not doing that so that people who made too much money could then get money into a Roth IRA. And so, therefore, there's something in the law known as the step transaction doctrine, just know that's what it is called. And it is possible that one day they could come back and go, oh, your intention was not to convert money, your intention was to do a backdoor Roth IRA. And therefore they might disallow it. If you just wait 12 months from when you fund a traditional IRA with nondeductible money and you wait 12 months to then convert to do the backdoor Roth IRA, you're going to be scot-free. You know, the I.R.S. has actually stated that if you do a 12-month waiting period, it's sufficient to avoid this step transaction doctrine. So that is why. This is our final, final question. The reason I keep selecting these Roth questions, by the way, everyone, is because that Sunday two weeks ago it still gives me nightmares. Hi Suze and KT, I love your down to earth attitude on your podcast. Thank you for that, it is so important to be grounded, and thank you also for making me feel stronger. Can you please give me an example of how the five-year rule applies to a converted Roth if you currently have $100k in a traditional IRA and plan to convert about $10k at a time each year? I am currently 58, I plan to work until I'm 70, God willing, and will work even longer if possible. I am a widow. I want to get clarity on how the five-year rule works, how much I can use at a time without getting taxed. There you go, Suze that's our big final. That's the finale, everyone, it's like July 4th. It should actually be the entire podcast for this coming Sunday, to tell you the truth. I'll try to be as clear as possible, and don't you dare roll your eyes at me, Miss Travis. The five-year rule for a converted Roth, which is different than a contributory Roth, is this. You have $100k in your IRA, your traditional IRA, and you convert $10k. Every time you convert any money from a traditional IRA or IRA rollover to a Roth, the five year holding period starts all over again for that particular amount. So, you convert $10k this year, you have to hold that money for five years in that Roth IRA before you can take out that $10k penalty-free. Obviously, you can always take out any money you converted income tax-free. Why? Because you already paid taxes on it. But to get around the 10% penalty, you have to let the money stay in there for five years. Now, please listen closely, because this is important because you said you are 58 years of age. So, I'm going to give you two examples here to understand what I am talking about. You are 35 years of age and you convert, and now you wait until you are 40. When you are 40 you can take any amount of money that you converted without taxes, and without that 10% penalty. It's the earnings on that money that you cannot touch until you're 59 a half without penalty and without taxes. OK? And if you convert again the next year, that amount has its own five year holding period. However, listen to me closely now, because this is what you have to understand. Once you turn 59 a half years of age or older, the 10% penalty is moot, it doesn't matter. So, once you turn 59 a half, you can take any amount of money that you converted into this Roth IRA without taxes and without the 10% penalty. So, the five-year holding period actually doesn't apply once you're 59 a half years of age for a converted Roth IRA. Different if it's inherited, different if it's a contributory, whatever it may be. But for a converted Roth, which is what you are going to do, once you turn 59 a half you don't have to worry about anything. She should wait. She's 58, she would normally have to wait five years, and most people would interpret that she would have to wait until she was 63 to touch her original conversion amount, but that's not true. Once she turns 59 a half, girlfriend, you don't have to worry about anything. So just go another year and a half, and then she's scot-free. She can take all that money that she converts. Yeah, she converts and the earnings because she's 59 a half and older. All right, just hold on, girlfriend. All right, so that's how that works. Now, did I confuse you all even more? Was that a great one? No, that was a great one, that was great. That was great, yeah, because that was so clear. Just wait. All right, so we are coming up on the election in a few days, which is a big one. Go vote everyone. So, listen to this Sunday's podcast coming up because it's really about, you'll see, I want you to listen to it. I have already recorded it, just so you know because I wanted to make sure that it got out in case another storm came. But it's a really good one and it's one that really touches my heart and I hope it touches yours as well. I can't wait to hear it. Yeah, KT hasn't heard it.I haven't, she won't reveal it yet. So, until Sunday, want to say anything to everybody? Yeah, go vote, stay safe, stay healthy, wear your mask, wash your hands, and love each other up just like Suze and I do. It really works.And keep telling KT how much you love her. All right. See you Sunday. Bye-bye. Hi, I'm Sarah, and I'm Robert, and we're from Suze Orman's Women and Money podcast team here to tell you that Alloya's member credit unions are so proud to have brought you this episode. You know, Robert, credit unions live by a people helping people philosophy. Absolutely, Sarah. And that means when you bank with a credit union, you can trust that they have your best interest at heart. The fact is, regardless of circumstance, a credit union will have your back and keep your money safe, that's the credit union promise. Go to www.MyCreditUnion.gov to find a credit union that fits your needs. That's MyCreditUnion.gov. In providing answers neither Suze Orman Media nor Suze Orman is acting as a Certified Financial Planner, advisor, a Certified Financial Analyst, an economist, CPA, accountant, or lawyer. Neither Suze Orman Media nor Suze Orman makes any recommendations as to any specific securities or investments. All content is for informational and general purposes only and does not constitute financial, accounting or legal advice. You should consult your own tax, legal and financial advisors regarding your particular situation. Neither Suze Orman Media nor Suze Orman accepts any responsibility for any loss, which may arise from accessing or reliance on the information in this podcast and to the fullest extent permitted by law, we exclude all liability for loss or damages, direct or indirect, arising from use of the information.

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Suze's Financial Strength Test

Answer Yes or No to the follow statements.

I pay all my credit card bills in full each month.

I have an eight-month emergency savings fund separate from my checking or other bank accounts.

The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!

I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.

I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.

I have term life insurance to provide protection to those who are dependent on my income.

I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.

I have checked all the beneficiaries of every investment account and insurance policy within the past year.

So how did you do?

If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.

As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!

But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.

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