401k, College, Credit Score, Loans, Retirement, Roth IRA, Savings Account
October 10, 2019
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In this Ask Suze Anything podcast, we hear questions from Women & Money listeners “Nameless One,” Jamie, Allie, Kristen, Jessica, Esther, Tori, and Angelina.
Welcome to the Women and Money podcast, and, of course, the men smart enough to listen. This is the Ask Suze Anything version, and what I'm loving is that as I'm looking at the numbers of my podcast, you love the Ask Suze Anything. You want to learn about your money, just as much as you do with the Sunday versions when they drop, which are more about the spiritual and emotional and psychological side of money. So I love that. So, if you have a question that you possibly want to be answered here on the podcast if chosen, please send it in to AskSuzePodcast@gmail.com. And again, if chosen, I will answer it on this podcast. Let's start right now.Now, this is from a woman who doesn't want me to use her name, so I won't. So she says, I have a question. If I wanted to have a secret account or keep an account secret from a live-in boyfriend, how could I do that? He doesn't live with me yet, but we've been talking about it. She requests, please don't post my name if you use this, I don't want to reveal it since we are not married. Also, I'd like to have an emergency account, but I'm afraid of the paperwork coming in. I'm aware I could get a post office box but is that my only option?Well, my dear nameless one, that is not your only option. Your other option is, do not have this person in your life. Are you kidding me? You want to join forces? You want to spend your life and live with somebody that you don't want to know anything about what you have? Everything needs to be a secret? You want to have an emergency account, but you don't want him to see the paperwork. Why is that? Sure, you could get a post office box, but why would you want to do that? You know, I know my advice to you, my dear one, is get out of this relationship now. This is already a warning sign. A warning sign when it comes to a relationship. M just doesn't stand for marriage, it stands for money. And you want to be open, you want to be honest, you want to be able to share everything with the person you want to spend the rest of your life with or you live with. You do not, you do not want to hide your money from him. Because remember, money is just a physical manifestation of who you are. And if you feel you need to hide your money from him, that says you need to hide who you are from him. And why would you want to do that? Get rid of him now.OK, now, let's maybe go to a little lighter one. Hi, Suze. I just listened to your recent podcast regarding private loans for college. I'm in the fortunate position of having enough money put aside for college for my only daughter, who is a high school senior, through investing gifts from her grandparents in a UTMA and a 529 plan.Just for those of you, if you don't know what a UTMA account is, it's a Uniform Trust to Minors Act account. You also can know one as a UGMA, a Uniform Gift to Minors Act account. And it's just an account that while your child is a minor or under the age of 21, in the UTMA, that really, it's in your name, even though it's for their benefit. And then at age, when they get to be of age, it becomes their money.But here's what she says. I believe in the stock market's ability to grow. However, with the recession looming or a possible one, (we don't know if it is or it isn't but anyway), and so much uncertainty in the market, I realize I need to do something now to protect the funds for the next four years of college. Here is her question. I am wondering if I should leave the money as is to keep growing and instead take out a 3% loan? Am I wrong with thinking of a 3% loan from a credit union or Sally Mae makes sense? I would eventually need to liquidate the UTMA to repay the loans. Thanks, Suze.Listen, Jamie, right now you are in the position where you say you have enough money put aside for your daughter's college education. And even though it's in a UTMA and possibly a 529 plan, and possibly you're going to have to pay a lot of capital gains tax on the money that's in the UTMA, which is why I like a 529 plan far better. Remember, when you invest in a 529 plan and it grows, and it grows, and it grows. When the kid finally goes to college, you get to take it out totally tax-free. That is not true in a UGMA or a UTMA account, and money in a UGMA or a UTMA account does count against the child for financial aid, but financial aid is not a problem in this particular situation.But Jamie, if you really think that a recession is looming, that there's uncertainty in the market, why would you chance it? Who cares? You've been in the fortunate position to have enough money to pay for your kid's college education, so just start to liquidate now. She's a senior in high school, so it's coming up very shortly here, and just put it in a money market fund and who cares? And now you know you have enough money, no matter what happens. I would not be taking out a 3% loan in order to keep my money still growing if I didn't know my money was going to grow at more than 3%, which nobody does. So just don't do that. Now, I just want to make a caveat here, which is why I'm saying this. I will never, ever forget doing an Oprah Winfrey Show in 2008 when the markets crashed. And there was a couple on that had saved $400,000 for their kids' college educations that they had because they were all going to college at the same time, and they left it all in the stock market and they lost the majority of it. And now, they didn't know how to send their kids to school. Really? So, therefore, anything can happen at any time. Don't mess with certainty. Remember the law of money? It's better to invest in the known than the unknown. So just play it safe, Jamie. Just play it safe.All right. This one is from Allie, and Allie says I'm a 23 year old and I have some priority issues and I need permission from you to quit my job. Not exactly sure I'm the right personality to come to, to quit a job, but anyway, I will continue. I am in graduate school full time, getting my degree in social work. You do know, Allie, that my degree was in social work? But anyway, I have 24 hours a week of clinical work. On top of that, I also work a part-time job. I think altogether I am working 60 plus hours a week and I am exhausted. I am also married and have responsibilities at home, too. My husband does not make enough money alone for me to only focus on school. I was lucky enough to get a fellowship of $10,000 but I would like to use this money for paying off school loans faster instead of living expenses. I'm having a rough week and feel like I need to quit my job in order to do well in school and have a good marriage. She goes on to say, I am terrified of student loans. If I quit my job, I will have $16,000 in loans to repay, and if I continue to work, I can use my fellowship and only have $6000 of student loans. I know this is not a lot of money, but I want to be able to buy a home when I graduate and start a family soon. Thanks for your advice, Allie.Now, here's what I found fascinating about this question. She says that I'm having a rough week and I feel like I need to quit my job in order to do well in school. But here's the clue, and have a good marriage. Allie, my love. Here you are, you are 23 years of age, and somehow why do I have this feeling that everything is on you? That your husband is not a true equal participant in this marriage? It's not about that your husband doesn't make enough money alone for you to only focus on school. Is he helping you with all the responsibilities at home, with everything that you need? You say that you are working 60 plus hours a week and that you are exhausted. Is he exhausted? Is he, Allie? Is he working at least 60 hours plus a week and going to school? Or could he be working more? Could he be helping out more? Could he be contributing more? Why do I feel that the answer to that question is, yes? And I see in this email that you used these words: I am terrified of student loans.If you are terrified of student loans and you quit your job, and you take out a loan, that's going to make you be terrified, which means you are afraid. Now you have fallen into one of the three internal obstacles to wealth. Fear. You will be afraid. So, if you're terrified of something, why would you want to do it? Why? And the fact that you're saying that you're having a rough week? Why are you having a rough week? Did you have a fight? What went on? I don't know. So here's what I would say to you. No, you should not quit your job in order to do well in school and have a good marriage. You are already doing well in school or you would not have gotten a $10,000 fellowship.I am telling you, in my gut, this is all about your marriage, this is not about your student loans, you, your job, your school. It's about what you come home to every single night that, in my opinion, is making you tired. So no, I would not quit my job. I would absolutely change my opinion about how I feel about my job. Listen to last week's, I think it will be last Sunday's, whatever podcast it is. It's the Great Destructor of All, that's the one you should listen to, about how time will destroy everything. And there's only one way to conquer time, and that is through love. So I want you to check-in with yourself and make sure that you are loving every single thing that you do, including loving every second that you are in this relationship. Stop thinking about you want to be able to buy a home, graduate, and start a family soon. I don't think you are ready for that on any level. I could be absolutely wrong about how I'm feeling about this relationship that you're in, but why do I think that I am right?You know, as I sit here and I answer a question like that, it's not easy for me to come up with this out of the nowhere idea. Or you might think it's out of nowhere idea of, oh, it's probably your relationship. It's not your job. It's not that. And you may be thinking, Suze, how do you know? She probably has a great relationship, she probably loves her husband, whatever. I have to tell you, and I just want you to understand this. I have been doing this now for 35 years, and you know what I have realized over all of that time? That there is a pattern that emerges that when somebody hates this, hates that, feels exhausted. Da da da da. Mentions her spouse in a very non-direct way, but uses words that indicate something is not right. I don't know, I can't remember the last time I was ever wrong about that. And as women, especially somebody who is a social worker, they're going to want to think that they can take care of anything and solve every problem, and make sure everything is OK because that's what they're trained to do. And so what do we do? We blame the things that we're doing; our job, whatever it may be. Rather than looking at the situation that may be truthfully making us miserable, but we really don't know how to change. So just know that my advice comes from experience and reading far too many emails talking to far too many women that are in a situation and that all use keywords, identical words, that lead me to say it's the relationship.Next is from Kristen. She says, hi, Suze. Is an NFCC really reputable? And does it really not affect your credit score?Before I go on with this email, here's the thing. A lot of you are in credit card debt and you don't know what to do, and you don't have a great FICO score or a credit score, and therefore you can't do a balance transfer. You can't get a 0% interest rate on a balance transfer card or whatever it may be, and actually, you can't get any new credit cards at all to transfer to at a possible lower interest rate than what you are paying. And so, you are looking for a situation to help you get out of credit card debt. And over the years, I've recommended that you go to www.NFCC.org, which is a nonprofit corporation that will work with you to lower your interest rates, find a place for you to work with directly, and give you a five-year plan to get you out of credit card debt. And it's simple, it's where you pay them, they pay the credit cards because the credit cards are being paid by them. The credit card companies will lower your interest rate to a great interest rate, even though your FICO score says you don't deserve a great interest rate, and it's a great place to deal with debt.But she goes on to ask, reading their website I'm a little concerned. It says they leave a note in your FICO score about being involved in a debt management plan but claims it can only positively impact your score because of on-time payments and no credit inquiries. I'm truly asking for a friend, a smart enough man who listens.See, I love that. Although the man should have been able to ask this question himself, I would have answered it. You know, I just don't answer questions from women. But he pays the minimum on time and has only recently been in a position to pay more, he's close to $40,000 in debt and needs to do something.So here's the thing. Yes, it goes on your score, but it will not hurt your FICO score. So, if this is something that will help him get out of debt, which it probably will, then he should absolutely do that. There is no problem with it what so ever, at all. You know she does go on to ask, is it worthwhile to call credit card companies for interest rate reductions first, to try to compare? Or, try that Citi card with a 0% interest rate you spoke about not long ago? He can try that, but if he does not have a good FICO score, they're not going to say yes. If anything, he might want to check with a credit union to see if they have any balance transfer cards that can help him. But truthfully, I would just do it through a www.NFCC.org.This next one is from Jessica, and this is an example of someone who, in my opinion, made a serious financial mistake. So when you listen to my podcast, and I'm telling you about Roth IRAs and transferring money to one and everything, you need to pay attention to what I am saying to you, because obviously Jessica needs to fix this problem that she just created, big time, for herself. She says, I'm 27 years old and I live in Los Angeles. I recently left my previous job in another city, and I rolled over two accounts to a personal Roth IRA within the 60 day period. My total contribution in my Roth IRA account is now approximately $40,000 with Vanguard.Now, before I even go on, this is the mistake that Jessica made. Now Jessica actually goes on to say, the money is in a money market account, and I really don't like it sitting there, how should I invest it? That is not the problem here. Did you hear how Jessica said that she rolled it over into a personal Roth IRA within the 60-day limit? Let's get this clear, everybody. The 60-day limit does not apply to a Roth IRA. When you roll money, or transfer money, from a pre-tax retirement account into a Roth IRA, whether it's a Roth IRA rollover, whatever kind of Roth account it is. The amount of money that you rolled over, or you put in there, is totally taxable to you as ordinary income. So that $40,000, Jessica, that you rolled or you put into a Roth IRA, that $40,000 is going to be added to your income taxes this year.You go on to talk about how you're making about $70,000 but whatever, it's going to increase you to over $100,000. The 60-day rule that I talk about is if you get a distribution from a pre-tax retirement account, an old job, 401k, 403b, whatever it is, and it comes directly to you, which is a mistake, to begin with. It should be a custodian to custodian transfer. It should go from your old employer directly into a pretax IRA rollover, but that's how you should do it. But if you get a check from an old employer with money you have never paid taxes on, you have 60 days from the date of that check to put it into an IRA rollover, or you're going to pay ordinary income taxes on that entire amount.When you put it into a Roth, you're going to pay the exact same taxes as if you had never put it into a retirement account at all. So you have made a huge mistake. Listen to me, you are never, ever, ever to take a lump sum, a large lump sum, from a pretax retirement account of any kind. Whether you're still working for that corporation, you're not working for them, it's your own individual IRA and put it into a Roth account because you will pay taxes on the amount of money that you put in there. So if it's a large amount, you are going to owe a lot of taxes. If it's a small amount $2000, $3000, $5000, OK, but not $10,000, $30,000 or $40,000 or more. So, Jessica, hopefully, you have done this recently within the 60-day period of time, and you still have 60 days left from when you did this. Or you within that 60 day period and you can get it out of your Roth IRA into an IRA rollover, and then, little by little, put it into a Roth IRA, if you want. But no, do not make that mistake. Got that?You know, it's upsetting because sometimes I think you've listened to some of my answers with half an ear, half a brain. Are you multitasking while you're listening to me? This is your money. This podcast deserves 100% of your entire attention as I'm telling you something to do. Otherwise, you are going to make a mistake like Jessica just did, and it's going to cost her at least probably $20,000. Are you kidding me? So why would you do that? It is better to do nothing than to do something you do not fully understand. So don't think that you totally get what I'm talking about if you aren't paying full attention to what I'm saying. How many times have I just had to go over the advice that I gave Jessica? How many times have I had to go over it? Way too many times. So I am begging you to listen closely. OK, listen closely from Esther. She says hi, Miss Suze. For some reason, I like when people call me Miss Suze. Anyway. I kindly request your financial support. OK? I want to start up a business, but I lack capital. I am an orphan struggling to care for my siblings, but I lack a penny to support them. I will be so grateful if I get a reply from you. Thanks, Esther.Well, I chose this because a lot of you have been writing to ask me to financially support you or send you money in some way. I'm telling you right now, I will not be sending you a penny. So do not ask me to send you money. I don't know you, I don't know if it's legitimate. There are so many of you doing it. So I do not want you to send emails like that anymore, because you're just wasting your time. That's number one. But number two, what concerns me about Esther's email, because I do believe her, is that she wants to start up a business, but she lacks capital. A business is not the only way to support your family, my dear Esther. Business is difficult. You need working capital, you need to know how to run a business, you need to have the idea for the business, and you don't do a business simply because you want to take care of somebody. You do a business because you have an idea that is burning in your soul that you know, and you believe it's going to make money. You have a business plan, you've given it a lot of thought. In this email, you don't tell me about your business, you don't say anything, you just say that you want to start up a business. What kind of a business? So it is very important whether you are Esther or anybody else that needs money, have a business plan. Know what you're doing, but besides starting a business, especially if you lack the capital to do so, you need to have a job as well. You need to have money coming in so you can pay your bills while you're doing a business. You have to do both. Got that?All right, let's just do two more very quickly. This one is from Tori, she says, as a single woman in my thirties, I really want to be sure that I save enough money for retirement, but I need your help determining where I should be allocating my money. I have a HELOC with an outstanding balance of about $17,000 at 6.5% APR. It pains me to have an interest-only loan. Should I continue to focus on paying down my HELOC and put monthly Roth IRA contributions on the back burner? Any advice would be greatly appreciated.Tori, listen to me. I tell you, debt is bondage. You will never have financial independence, financial freedom, if you have bondage. You say that it pains you in this email, because there were other things that Tori said, but you say it pains you to have an interest-only loan. If it pains you, pain causes you to feel powerless. When you are powerless, the number one law of money comes into effect, which is power attracts money, being powerless repels it. Your HELOC, which is interest only, is at 6.54% interest. Even after a tax deduction for that money, you are still paying more for that loan than you, probably over the next year or two or three, will be making on your Roth IRA if these markets go against us. So yeah, forget about the Roth IRA.Do you have money? Do you not have money? If you have debt and you're saving, you don't have money. It's not debt like it's a mortgage, it's a HELOC, and you're not even paying down the balance, you're doing interest only. So the banks, oh, they just love you because the money that you're paying them 6.5% on, is not costing them anything to borrow. Nothing. Remember, that people are putting money into the bank, they're getting, what, .5% on that money? And then the bank is turning around and lending you that money at 6.5%. They're making a fortune on you. So, therefore, get rid of that debt, and then the Roth IRA.All right, this is the last one because I kind of think it's sweet. It's from Angelina, she says, I have two birds that are going to live way longer than I am, and I want to make sure that they will be taken care of after I die. How can I best do this?So, my dear Angelina, I love this question, but here's the best thing that you can do. I personally would set up a living revocable trust. Now, I've talked about trusts before in previous podcasts. A lot of you are writing in and say Suze, what is that offer that you gave us in order for us to get a trust, the trust that you've created online for everybody? It is www.SuzeOrman.com/offer. If you go there, you'll be able to download, obviously, you have to purchase it, my living revocable trust. And what I would do is, I would do that trust, and I would make a friend, whoever is going to take care of these birds for you because you have to have somebody take care of them. I would name that person in the trust, and I would leave them money via that trust to be able to take care of the birds. So you need to figure out how long these birds are going to live, possibly. How much does it cost to take care of them, including if they get sick or something? And leave that amount of money to that person. If you trust them with your birds, you can trust them with the money for those birds. That's what I would do.All right. This ends another version of the Ask Suze Anything podcast. As always, I thank you for listening, but you need to pay attention. No more mistakes. I don't want any more emails where I'm reading that you have done something, and I have to go, oh my God, I told you not to do that. So please listen to all the podcasts, it might just save you a whole lot of money. 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. To find the right Credit Union for you, visit https://www.mycreditunion.gov/. Interested in Suze's Must Have Documents? Go to https://shop.suzeorman.com/checkout/cart/index/.
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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