401k, Retirement, Roth IRA, Social Security
November 12, 2020
Listen to Podcast Episode:
On this podcast of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners selected and read by KT. We hear from Claudia, Cecilia, Lisa, Ann, Mary Beth, another Lisa and more.
November 12, 2020. Welcome to the women and money podcasts as well as the men smart enough to listen. This is Ask Suze Anything with KT With KT, Of course with KT. So what are we gonna what are you gonna ask me today? I think I picked questions that were like a theme. And the theme is family related. It's all about family questions, moms, a lot of this reminded me of you and I when we were looking after our own mothers. So I thought, why not make it a family affair? Finances a family affair. Alright, so that's what we're going to do. By the way, everybody, if you would like to ask a question, I'm gonna actually make it very simple for you. Just right into Ask Suze podcast at gmail dot com. You could do it directly that way, or you can go to the app, the women and money app and ask it there. But it really comes directly to asksuzepodcast@gmailcom. So if you just want to ask me a question directly and chosen, we answered here on the podcast. That's probably the easiest way to do it. I think they should say, Ask Susie and KT. Yes, I know you. Why don't they just go right to KT because you don't have a Gmail address? Asked me the question. Go on. First one is from Claudia. My parents have asked me to be in charge of their finances. Help. My dad is 64 my mom is 58. He has retired and receives about $750 a month from Social Security. Mom has always been a homemaker. They do not have any debt, no retirement accounts. They do own their home. Valued at $440,000. They have $95,000 in a savings account and own their home in Mexico. They do not have any paperwork in place to indicate what to do when they die. Please help. I'm not sure what to do to make the money grow safely and what paperwork they need to feel secure that their wishes will be followed when they pass. They have four adult children, including myself. They want everything divided equally after they're both deceased. You know, Claudia, it's interesting here, but I'm not sure you should be taking over the money for your parents. Your parents are not that old. They're really quite young, a lot younger than you and me, KT. So therefore, it's really important that they stay, in my opinion, anyway, in control of their money. And at $95,000 which is essentially all they have, I don't know. Maybe they just should keep that 100% safe and sound. The bulk of their money is in their real estate, both here in the United States as well as in Mexico. So at this point in time, honestly, I would keep their $95,000 simply in a money market fund. I know it's not gonna make them hardly any interest, but at least it's safe there, and that will make them feel secure and you won't be pressured in case these markets go up, down and all over the place. So the best thing you should do is look into my must have documents, their state of the art documents they're living revocable trust, a will in advance directive and durable power of attorney for healthcare. The easiest, honest to God, the easiest way to get them is just go to SuzieOrman.com/offer. And you can pick them up there. Just give that a try. All right, KT. Okay, Suze. Next question is from Cecilia. My mother needs to be placed in assisted living or have a caregiver move in with her. She owns a duplex property in Pasadena. She lives in one, and her sister, my aunt, lives in the other. This is all paid for and under her name under mom's name. And she has a living trust. And I'm the executor of the will and listed as having durable financial power of attorney, which is great. My thought was to help her sell and try to buy a small apartment for her closer to me in San Francisco. How much time do we have between selling the houses and buying a new place for her in order to avoid capital gains tax. Or is there a better way to proceed? Look at your little smile? Why you got that little smile? Because I have to tell you this was a really complicated question and we made it. We made sense of it. You made I made sense of it. I rewrote this so many times because it was a little bit jumbled up, Cecilia, But I hope we got it right for you. All right, So, Cecilia, here's what I want you to know. Number one. You say that Mom has a living trust. You need to make sure that both properties are owned by the trust. One of the biggest mistakes people make as they create a living revocable trust. Especially in the state of California where probate fees are statutory. So you want to make sure that you have the title of the homes as the title of the trust. They have to be held by the trust. Or if something happened to Mom, you would go through probate, and you would be paying a whole lot of money number one. But number two, I wouldn't be selling the houses here. And the reason that I wouldn't be selling the house is that Mom owns the home outright. I think you would be far better off getting her a live-in where she currently is so she feels comfortable where she is. She doesn't have to learn to live in a new place, because also what KT didn't mention in this email that I'm looking at is that Mom is blind. And so therefore, if you move her, she's gonna have to learn a whole new place all over again. So she probably feels more comfortable where she is right now. That's number one. Number two. Her sister lives in her home as well that she owns. What are you going to do with her sister if you sell both properties? Your aunt. So you don't want to do that? And if you leave everything exactly how it is and mom dies, I want you to listen to me closely. Mom dies, You will inherit, hopefully via the trust, both properties. And then you will get a step up in cost spaces on both properties so that if you then turned around and sold both properties at that moment in time, you wouldn’t have to pay a penny off capital gains tax. If you were to sell her property now, she gets a $250,000 exclusion on the property that she's been living in as her own primary residency and anything above that cost basis also above any improvements that she made to that property, she will owe capital gains tax on as long as she has owned the property for over one year. But if you were to sell the property that the sister, your aunt is living in, you don't get an exclusion for that at all because it's an essence. It's a rental property. So, you are going to pay capital gains tax on anything above her cost basis and her improvements, and there is no way around that. But really, if I were you, I think I would leave Mama exactly where she is, because even if you move her, you're going to have to get a live-in help for her. So why not just leave her at a place that's comfortable for her? What do you think of that advice, KT, Given what we had to do with our own moms. Well, the only thing I know that she wants to bring her mom closer to her up north in San Francisco, and I thought that's even more expensive for anything. Um, I think it's good advice to keep Mom where she is. Have a caregiver. Her sister's there. She's comfortable. Let her be there as comfortably as long as she That's what I say. Don't move her. Alright? Okay, Suze. Next question is from Lisa. Hi, Suze. My mom died and left a will in which all assets were to be split three ways among three sisters. She also established a supplemental needs trust for my disabled sister. My mom lived in a home, which is to be split three ways. Yet the land was in my mom and disabled sister's name. She had a modest IRA and a car, the lawyer says we must do full probate. He drew up the will and the trust. He's charging $3400 plus $450 in fees, and he said in total the probate cost would inch towards $11,000. He said there are many reports you must do on behalf of the disabled sister. So how is this possible? I thought a will was to help avoid probate and not make it more complicated. So have I not been saying to all of you over and over and over again that you all need a living revocable trust that if all you have is a will, right, you are going to pay.There's no way around it because wills have to be probated. Now what's interesting about this, KT, is that she says she has an IRA. And whenever you have or her mama had an IRA. And that whenever you have, like an individual retirement account or a life insurance policy or any investment where you designate the beneficiary you named the beneficiary. So let's say Mom, Lisa left you as the beneficiary of the IRA. And it should pass to you immediately without probate. So just check that to make sure that that isn't an asset that's going through probate unnecessarily. Number one, number two. Yeah, those are probate fees. A will doesn't get you out of probate. A will put you into probate. So it's really, really important for you to understand that what he's charging you is exactly approximately what I'm sure it's going to cost the only way around. That would have been if you had the house and everything, right, in a living revokable Trust health for moms benefit while she was alive and held for your benefit after she has died. Why you looking at me like that? Because, Suze, if you read it, the lawyer did make a willing to trust. So what did he do wrong? He made, all right, Here we go, everybody. KT is going to roll her eyes because now she's gonna think I'm making everything complicated for all of you. Listen closely to me. I want you all to have a living revokable trust period. I want you to have a will and a living revocable trust. That is not what Lisa’s lawyer did for her. She had a will and a testamentary trust. So everything was owned an individual name. It then had to go through probate because it was dictated by the will. And then it goes into a trust, so the lawyer gets all the probate fees. That is not how you want to do it. You want to create a living revokable trust where you transfer the title of your property while you are live. That's why it's living right. While you are alive into the title of the trust. So therefore, after your death, it immediately would have gone to. Lisa. That was not how Lisa's mom's lawyer set it up. So I'm just going to say this again everybody, you do not want a will, and then it goes into a trust or a testamentary Trust. You want a living revokable Trust to own everything such as real estate, bank accounts, individual investment accounts and things like that. And just let's remind everybody that's what the must have documents are. Well, that's why we keep talking about them. And you know the other thing. I just want to say I know you might be thinking. Then why do you need a will? A will dictates everything. KT, don't laugh. They need to know this. A will dictates everything that isn't owned by a trust. And there are many things that can't be owned by a trust. Your jewelry I’m laughing because Susie and I have a living revocable trust and a will, and we change it. Oh, my God. We change. Suze changes that the way people change their socks. I'm telling you, it's crazy. Why do I change it? I'm not going to get the I'm not going there. Next question. This is from Ann. Hi, Suze. My mom is 93 years old and have asked me and my sister a few years ago to take over her condo. There is no mortgage on the condo. What steps should I take to get this done? I don't wanna wait much longer when she might not even remember her name. She owns another property that is will to all of her Children. This condo was purchased after the will was made. Please. I need your advice as to how to proceed with this undertaking. Suze it sounds like Mom wants hers and her sister toe have the condo. And for whatever reasons, the other property is to be distributed among the other Children. Well, here's what's interesting about this, KT is I know you think that you've chosen emails all about making finances a family affair, which you have, but really, all of these, if you think about it, are having to do with elderly parents, or parents who think they're elderly and how are their kids going to get their assets? How do they avoid gain all these things? It's interesting, but here's what I would tell you. Please don't have your mother put the condo in your and your sister's name. If she does that, you are going to make one of the biggest mistakes out there for two reasons. Number one. If she gives it to you, she changes title from her name to your name. She's also giving you her cost basis in that condo. So I've been talking about cost spaces on this podcast. So she bought the condo. Let's just say for 200,000, it's now worth 500,000. If she gifts it to you, she's going to give you her cost basis. So when she dies and you go to sell it, you're going to owe tax on the difference between her cost basis 200,000, and whatever you sell it for, you don't want to do that. If she dies and you inherit it, you get a step up in cost basis. So she dies. It's worth $500,000. The day that she dies, you turn around and you sell it. You pay no taxes whatsoever. That's one reason, second reason is this. You put the condo in your name and your sister's name, and now one of you is in a car accident where you happen to seriously injure somebody. Now there are all these kinds of lawyers out there that are going to search your files and they're going to see Oh, you own a condo because when you own a condo or a home, it's of public record and now they could possibly sue you and who knows what could happen? Will, Mama, lose the condo because of that. You don't want to do that. Leave it in Mom's name. Again get a living revocable trust, property should be held in living revokable trust. She can hold both of these properties in trust and say this property is for you and your sister upon her death. The other property that she owns is for whoever she wants to leave it to. She can change it anytime that she wants. Just like I do all the time as KT just said and that's how you do it. Also, if she becomes incapacitated, the trust should have an incapacity clause and allows you to step in and sign for her. Pay her mortgage, pay everything, sell it. That's what you need. So once again and I know you're all going to think. Oh, here. Go, Suze pushing her. Must have documents again. I'm not pushing them. I'm offering you something. State of the art documents. What KT has what I have the exact same documents at a price that every single one of you can afford. I'm offering it and saying to you share it with every family member that you have. Just go to SuzeOrman.com/offers. Seriously, everybody. And just look at what you get. And when I'm offering you, you make your decision. Fine. You don't want to do it there. I don't care, but go to somebody getting attorney. It'll cost you about $2500 and get these documents in place. Hi, Susan and KT, can you please further explain the 10 year rule as it applies to inherited IRAs? My sons are beneficiaries on my IRAs. And while they're in their mid twenties, I want to talk to them about how this rule may impact them in the future on what they should look at when determining their distribution schedule. So it is depleted after 10 years. I think they're smart young men. However, words from Suze are very respected in our family, and I would love to share your insights with them. I wish words from Suze were really respected in my family. Just joking, everybody. Here's what you need to know. In 2019 December 20th, to be exact, laws changed about inherited IRAs. In fact, laws changed about a whole lot of things required minimum distributions from IRAs and all of that. You used to be able to do what's called a stretch IRA. Because IRAs, traditional IRAs, are pre taxed, you haven't paid taxes on them yet. When you die, your beneficiaries have a specific amount of time that they have got to withdraw that money unless that beneficiary is a spouse and then they could take over your IRA as if they were their own. But if it's anybody other than a spouse, they can no longer do a stretch IRA, which means they can stretch their withdrawals over their lifetime they have to wipe it clean within 10 years. Essentially, that's all they need to know. They can wipe it clean sooner than that if they want, but they do have the ability to take money out over a 10-year period of time up to them. They can wait for 10 years and take it all out in 10 years. But in 10 years, it all has to be wiped clean. Now, one thing I'm just going to say here, this is why I've been asking all of you to look at doing a Roth IRA a Roth 401 K because then when your kids inherit a Roth retirement account, they can wipe the whole thing clean anytime they want. Really? Because it's gonna be tax free to them. So if you don't think you're going to need money from IRA later on in life or 401 K, or whatever it may be, you might want to think about getting that money over to a Roth now to benefit your kids. All right, Suze Let's keep on the same theme here. You're ready? This is from Lisa, By the way, Lisa’s from Rhode Island, one of my favorite states, the Ocean State. Why is it your favorite? I went to school there. Ok Hi, Suze. I just purchased your ultimate Retirement guide for 50 plus book and stopped on page 48. For what? I hope to be a great move for me. I just turned 60. I'm still working as an HR director for the Navy. I've been adding money to my TSP accounts for years. I have learned that if I want a Roth IRA, I have to do a back door type of process. However, your book states to check and see if you have a +401 k Roth eligible, the salient point and this is well worth the cost of the book and the news to me is that everyone is eligible and there is no income limit. Wow. If I understand this correctly and I just want to know for sure is that I can go ahead and start my future TSP payments into the Roth IRA, which is available at our TSP accounts without worrying about my income being too high. So the question is simple. Is this correct? Should I do this? Lisa you have that correct. There are no income limitations for a Roth TSP a Roth 401 K or Roth, 403 B whatever it may be like there are for a Roth IRA. Yeah, that's true. Page 48 everyone. Yeah, but everybody, if you do qualify for a Roth IRA, you can have a Roth 401 K or Roth, 403 B or Roth TSP and a Roth IRA. All right, enough with the Roth. I know you hate them. I don't hate them all right. Ready? Hi KT and Suze. I'm 65 working. My full retirement age is 66 and 2 months. I plan on working until 70 but I want to start collecting at 66 and 2 months so I can use all of the Social Security money to build up my retirement income. I have a 12 month emergency fund and a small state pension plan. Is it true that I can collect Social Security while working? Oh, here we go again, Teresa, my dear one. Listen to me closely. It's true that once you reach full retirement age and it's different for almost everybody if you were born before 1960 if you were born 1960 or after your full retirement age happens to be 67. But if you were born before that, it's different. So you have to look it up. Um, Teresa's full retirement age is going to be 66 and 2 months. But Theresa, does that mean you months that you have to be 66 years of age and two months old for you to collect full retirement? I didn't know about the two months business. Well, that's because why I didn't know. We never say 66 2 months. We've never seen two months part Well, you're 68 you just now have claimed spousal Social Security off of me. But it's the two months part. I thought if you turned 66 years No, no, it's all based on your year of birth. Look it up, everybody. I didn't know that everyone. So there's something to learn every day. Sometimes I'm just amazed. Okay, I obviously I hear that. Theresa, listen to me. I do not want you to collect Social Security at 66 and 2 months or your full Social Security age. Got that? And the reason is you want to collect it so that you can save it and start using it to build up your retirement income. You could build up your retirement income better by waiting until you are 70 years of age, where your Social Security will increase by 8% every single year from your full retirement age until you're 70. So can you just wait until you are 70? Also, I just have to say this. So even though you can work after full retirement age and not have your Social Security docked at all, what you have to remember, though, is if you make over a specific sum of money, your Social Security most likely is going to be taxed 85% of its going to be taxed. So it just doesn't make any sense at all, even though you can collect it, for you to actually collected before 70 in this particular situation. Suze, I think we've come to the end of the podcast, but I have one more question. However, this isn't for you. This is my KT quiz. This'll is my KT special quiz question, which is for all of our listeners. And I think Suze will answer. Don't you think you should have asked me if I could do I want to do this? It's fun. Well, it's not really fun, but it's gonna make you all think and have to wait another week here. The answer. I said, wait, let me just get this right. You're going to ask a question. You don't want me to answer it right now. You want everybody to think about How would they answer this question? Then next week, am I going to answer this question? Yes, but it's KT's quiz question. All right. Uh huh. This is a question from Paula. Um, I am 58. I'm a single mom who rents an 800 square foot one bedroom apartment in Southern California that I share with my 19 and 18 year old Children who are attending junior college and working. Although our roots are here, I can't afford to stay. I want to leave the state in about two years for a modest home, probably about 50,000 to 100,000, preferably a cash purchase with a space for my garden. All right, so here's her stats, Everyone. Paula makes $70,000 a year. She contributes 16% to a employers Roth 401 k. She has $40,000 in the Roth. She has a traditional IRA with 300,000, and she has a seven month emergency fund. Should I tap the Roth for a home or rent? What do you recommend? Okay, so here's your question. Everyone should. She tapped the Roth. She has 40,000 in that for a home or rent. So a home. Right now she wants to buy a home. Nope this is for when she leaves. She's leaving in two years, and when she leaves the state because she can't afford to stay in Southern California, we don't know where she's going, by the way. But let's assume that she's going someplace that's gonna cost far less than living in Southern California. And she's asking this question. And how old is she? She's 58 so two years from now she'll be 60. So should she take out the $40,000 from the Roth IRA right to purchase the home. Or should she rent? So don't don't give them any tips, Suze. Alright, everyone. Next week on Thursday, KT's quiz question will be answered by the one and only Suze Orman. Alright, darlin. So until next time, all of you, What do you want to tell them? Okay, everybody, you stay safe. Yeah. See you next week. Bye bye.
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