October 05, 2023
Listen to Podcast Episode:
On this edition of Ask KT & Suze Anything, Suze answers questions about inherited retirement accounts, caring for aging parents, dollar cost averaging, student loans and more.
KT: Everybody. Good morning. Good morning on this beautiful autumn October 5th morning.
Suze: Of what year?
KT: 2023 baby.
Suze: And what makes it so beautiful?
KT: Because it's October.
Suze: What does that have to do with anything?
KT: The leaves are changing,
Suze: Not changing on the island.
KT: I know we only have palm trees but the palm, nothing changes there, but the leaves are changing wherever you are. Enjoy those leaves. I used to like anyway.
Suze: So this is the Women and Money podcast and everybody's smart enough to listen. This is the ask KT and Suze.
Suze: All right. Well, you're a little go getter ... feisty...
KT: I'm a little feisty. I'm opening with an incredibly great letter or email ready for this one. Everyone. I love this one. Hi, Suze. I wanted to say thank you and tell you how one,
KT: your episodes changed my life during the peak of the pandemic 2020. I used to go on long walks and listen to your podcast. I heard you say something in one of your episodes at the Apollo that changed everything for me.
KT: You talked to a woman about how she settled where she is now and how she needed to create a new truth for herself. You talked about facing our fears and creating our new truths as if they already happened. I cannot explain to you what an impact that had on me. See, Suze, they listen,
KT: following that episode every single morning, I started telling myself things ranging from I have more money than I will ever need my family and I are in perfect health. Everything is always working out for me. I am powerful, healthy, happy and successful. So she says, Suze, within a year, Suze, I paid off my debt. I've saved $67,000 since that episode. And now I started investing.
KT: I have changed the way I talk to myself all because of you. And that specific episode, I have big dreams and goals for my life and I have started telling myself new things every day. Listen to this one, Suze, I have a three bedroom, three bathroom house with a big backyard that is my new mantra. And then she said,
KT: Suze, how am I gonna own a house one day with these interest rates and this real estate market? I really don't know, but I know that I will thank you so so much for your powerful words that got me out of debt gave me the biggest savings account I have ever had investment and most importantly to change and be aware of how I talk to myself.
KT: What is the name of this person, KT?
Suze: All right. So you listen to me, girlfriend, I love that. You listened and that you did your truth and you said it over and over again as if it had already happened and then look what happened to your life. However, if you listen closely to my podcast or even my work at the Apollo Theater,
Suze: another thing has to be your thoughts, words and actions have got to be one. You just can't say over and over to yourself. I'm have a three bedroom house and da da da da. And yet think how are you ever going to do this with real estate prices being so high?
Suze: So you're saying one thing yet you're thinking another, you have to keep both feet in one boat where your thoughts and your words are one. You can't have your thoughts in one boat, your words in another boat. Because if those boats start to go in different directions, you're gonna fall in.
Suze: So if you really want to be powerful in life and manifest what you want in the future, your words, your thoughts and your actions have got to be one next question, KT!
KT: But congratulations Mercia.
KT: So next question says, hi, Suze. Please help me. I just got a huge promotion from a job making 65,000 in New York City to 150,000 in Washington DC. It's huge for a teacher like me. But now I don't know what to do with my 60,000 in my 403b at TIAA, should I leave it there?
KT: Should I roll it into my traditional TSP? My brother says to move it into my Roth IRA little by little, but now my tax bracket is higher. Does it make sense to do that when I plan to do my payroll contribution to the Roth TSP from here on out? Is there any benefit to have some pre tax money in an account?
Suze: So here's what I would say to you. Let me have that KT. So I can just see again a few things that I want to see about this email. So here's what I would be doing if I were you, first of all, congratulations on your incredible raise. The first thing you should do is continue to live and spend money as if you were only making $65,000 a year.
Suze: One of the things that happens to people is that the more money they make, the more money they spend. If you were able to make it on $65,000 a year in New York City, you could easily make it on $65,000 a year in DC. So that extra almost $90,000 a year
Suze: or whatever it's going to be after taxes start saving that money. Put it away, do not increase your living expenses just because you're making more money. That is number one, number two, I would take the money that you have in your 403
Suze: at Tia A which is a mutual fund company where teachers normally invest and I would do an IRA rollover with it into an IRA rollover at a discount brokerage firm. Not within a TSP. All right.
Suze: Number one, number two, I personally think you could see these markets continue down maybe next year or whatever it may be. But yes, little by little, I would be converting to a Roth IRA in whatever fashion you want as long as it doesn't increase your new tax bracket. And is there any benefit you ask for having some pre tax money in an account?
Suze: I don't think so. So forget, pretext money, forget all of that. Just do a Roth and then your money will Roth and Roll.
KT: Roth and roll. I like that. Let's do a song. Roth and roll. I bet you could.
Suze: So, all morning this morning before we do this KT is singing to me and then the two of us break out in song. Right.
Suze: And make up the words to this tune. Right. And that was kind of fun, KT.
KT: It was fun. We were both having our coffee and it started raining and I started singing to her and then she was singing back and then we kind of messed it up. We didn't know where to go because it stopped raining. So this next question from Gilda is a sad reminder of what we all need to be careful of. Now that it's autumn again.
KT: She said my mom died from COVID in 2020.
Suze: What is dying and COVID from 2020 have to do with autumn?
KT: Oh, because COVID could be rampant again. It's coming back in the winter. So she was 74 years of age and she left me her inheritance. Now, the question that Gilda has for you, Suze is, can I just leave that money in an inherited Ira to grow tax deferred and withdraw it all in the 10th year?
Suze: Should that have been your quizzie?
KT: No, because I still get confused about that.
Suze: That's why I think it should be your quizze. So you get it wrong.
KT: No, you tell her what to do.
Suze: So, Gilda. No, no, no, you cannot.
Suze: The new laws state that since mama was 74 she was of age to do required minimum distributions. RMDs probably was already withdrawing them or should have been withdrawing them.
Suze: So you have got to take out required minimum distributions from that account based on your life expectancy, not on what your mother was taking out based on her life expectancy, but on your life expectancy.
KT: How does she find out?
Suze: Oh, it's easy. You can go online or just talk to a CPA or anybody like that. Really, KT it's not that complicated. Right. But you have to withdraw that money every year. Years, one through nine.
Suze: Right? And then in the 10th year, whatever is left, you just then will automatically take what's left out.
Suze: You don't ever wanna wait just to the 10th year. Even if you could have, by the way, because why in the world would you want to be taxed in one year on all that money? So always, even if you didn't have to spread out the withdrawals of an inherited retirement account over years rather than just waiting for the 10th year. Unless of course it was a Roth IRA inherited. All right. Go on KT ok.
KT: Next question, Suze. If I own my own home and I know my children will not stay in the home, should I consider a reverse mortgage in the near future if needed? Instead of purchasing long term care insurance?
Suze: No, you should not. Listen,
Suze: I know all of you think reverse mortgages are the key to your financial salvation. They will allow you to stay in a house that you love in your head. And the only reason you would need to do a reverse mortgage is because you don't have the money to do. So. If you really
Suze: care about your money, about your children, about your beneficiaries, please don't do a reverse mortgage. I would rather see you if you can afford it to purchase long term care insurance. And again, the place you should go to talk to somebody about it is to Phyllis Shelton. So write Phyllis at got LTC I dot com. All right. Go on. KT
KT: This question is from Elizabeth. Hi, Suze and KT. I opened a child savings account at Alliant for my daughter who is eight months old.
Suze: Good for you. Remember, you can only do that until December 31st of this year. So do not miss it. Go to my alliant dot com and take a look. Go on.
KT: So she said first, thank you to both of you for everything you've done to set things up at Alliant for all of us.
KT: I already earned $200 from the savings and the checking account deals you put together.
KT: My question is this, is there any thought towards a strategy of funding the child savings account or opening CDs inside my daughter's account to try to earn a maximum of $1250 in interest so she can earn this interest with kitty tax rules as opposed to funding straight to 529 accounts. Just wondering if doing one before the other has a
KT: better earnings and tax strategy advantage.
Suze: I think your better tax strategy advantage truthfully would be the 529 account because remember when you open up an account for a child, it's usually a uniform gift to Minors Act account or uniform Trust to Minors Act account, which counts more against financial aid for college as one gets older. Also, once the child turns 18 years of age in most states,
Suze: let's say they don't want to go to college. Let's say they little Johnny or Jane Angel turns out to be Johnny or Jane Devil. I've seen it happen. Everybody and now they have all of this money that's theirs and you can't do anything about it to a 529 plan for the college savings programs. Go on.
KT: All right. Next is from Rachel. She said, first off, I love the podcast. I've learned so much and you give great advice. However,
KT: something on your latest episode, what to do with an inheritance, has me confused and a little upset you state that you...
Suze: You chose that because somebody, we've got, got somebody upset that you chose it.
KT: You have to kind of help people understand where you're coming from, Suze. You said that in situations where your parents are not in a good place for retirement
KT: that you should put, helping them ahead of saving for your own children. I really don't understand saving for your kids college. I really don't understand this. So Rachel goes on in a fairly long,
Suze: She must be a new mommy.
KT: Yes. But wait, she wrote something funny. She said I'm a new mommy, postpartum hormones, but I cannot accept putting my child in a worse financial position
KT: from the get go in order to help my parents and now she absolutely loves her parents, but she's a little bit confused about the order in which you made these priorities.
Suze: So, Rachel, listen to me, which is, I don't know how old you are, but it's an interesting thing that, as you get older, sometimes your parents may have sacrificed for you.
Suze: And now they're in a situation, Rachel where maybe one of them got sick, maybe they were in an accident, maybe something happened to them, they lost their jobs, who knows what happened and they maybe have been responsible with money. They've been great parents, but now they're in financial trouble. Not because they're in debt, not because of anything other than maybe they didn't buy long term care insurance may whatever it may be.
Suze: And now they are suffering and they need a little help. They need a little help just to be able to stay in their home or in their apartment or have money just to put gas in the car or whatever it may be.
Suze: So, at that point, you have to maybe make a choice between helping them when they're in their eighties. Their nineties, they no longer can work. Social security isn't doing it for them. Maybe one of your parents died and then one Social Security and a pension check is gone and now only one parent is left and they can't make it for whatever reason.
Suze: Do you really think you're gonna be able to look at yourself and say, you know what funding my child's college education fund is more important mom or dad
Suze: than making sure that you have money to eat or making sure that you can have electricity or your water bill or whatever it is. Do you really think if you were really in that position, you would choose your child's future college education over them? Now, why do I give you that example?
Suze: Because of the thousands and I mean, thousands, maybe even tens of thousands of people that have written me over the years that have been in that exact situation
Suze: and they have never regretted helping their parents just think about everything your parents may have done for you. So that you are in the financial position that you're in, which may be why they're in a financial position one day. Maybe they won't be, but maybe that's why they don't have the money. I could go on.
KT: I, I would also share it with
KT: the kids, I'd say, you know, grandma and grandpa need help or grandma needs help. She might have to come live with us, but we need to help her. So your college funding is going to be put on hold. I mean, I think that's, that's...
Suze: So, so it's just something to think about. But here's the thing that struck me about what you said that this would put your child in a worse financial position from the get go in order to help my parents.
Suze: Do you really think that your Children having to pay for a college education if they choose to go is putting them in a horrific financial position. The people that I know that are the most successful today in life,
Suze: graduated college with student loan debt, they dealt with it that gave them more drive. They were absolutely successful because of their own ability to know that they had to do what they needed to do to put themselves on sound financial footing. I wrote a book called The Young Fabulous and broke in that book, I interviewed over 1000 kids whose parents paid for their college education
Suze: and it came out in a year when it was very rough for kids to get a job. Everything was expensive for them. And the kids all said to me that they wished their parents had not gone into debt, had not made it so that they didn't have any debt
Suze: now that they were watching their parents not be able to live the life that they deserve to live. And then came the year 2008 when everybody lost their jobs. And then again, I interviewed kids and they felt so horrific that their parents were losing their homes
Suze: because they lost their jobs. They didn't have any money yet. They all went to school totally free because their parents sacrificed for them. Just, just think about that new mama. So, and put it in perspective.
Suze: But I really believe that if your parents have been responsible. They weren't gamblers, they weren't drinkers, they weren't, you know, irre they don't have credit card debt and they come upon a hard time, help, help them before you fund your kids'. College education. Great. There you go.
KT: Let me... on that point about college education.
KT: My next emails from Gabriella. Listen to this one.
KT: Hi, Suze. I owe $8150 in federal student loans at a 5.75% interest. Then I stopped payment. When the pandemic hit, I have the full amount saved in a separate account currently making 4.4% interest. I don't qualify for save, reduced payment plan for the save, reduced payment. You have to explain what that is.
Suze: Everybody knows that that is.
KT: I would start paying about $310 a month. So the question is, should I pay this already or should I start repayments and wait to see if by any chance a $10,000 forgiveness goes through via the alternate methods that the Biden administration is trying now, which they say...
Suze: Just, just stop here, just pay it off Gabriela.
Suze: You may think you know that if you don't qualify for save, you probably don't also qualify for the 5.75% interest to be tax deductible on your taxes. Yet the 4.4% interest is taxable to you. So possibly after taxes, maybe you're only making 3% or maybe 2.5% or something like that still costs
Suze: giving you five and three quarters percent for the loan. Plus it bothers you, oh, just pay it off because it just doesn't seem like anything's gonna pass anymore with the Congress that we have. So given that that's what I would do and if by chance they forgive it, chances are maybe you could go back and get it back from the student loan companies, but I would just pay it off. Yeah.
KT: Ok. Next is Maria. Hi, KT and Suze. Thank you for your support. I wouldn't know how to move forward financially without listening to your podcast and your shows.
KT: I do. There's talking about your show on Amazon
Suze: Freevee, Freevee. Everybody listen, one of the highlights of my life was the Suze Orman show. And for whatever reason, I was smart enough to own all 600 of those shows episodes which was unheard of by the way back then. Anyway, they are now all showing on Amazon's Freevee
Suze: So if you go to Freevee you can watch them and really so so much to learn. Watch the Can I afford it segment? Fabulous. So watch them. All right. Anyway, go on. Ok.
KT: So I have a very elementary question with all that I've learned from you. I'm thinking about investing into the stock market to receive dividends. What do you mean by dollar cost averaging?
KT: So there you go. Maria, Suze's gonna tell you. And that's never, never an elementary question. No question is elementary when it comes to your money, ever.
Suze: Let me say something to all of you, which is, I've been doing this as, you know, for about 40 years now and I've been asked the same questions over and over and over again.
Suze: And I never, and I mean, this, I never ever get tired of answering any question from the most simplistic to the most complicated because if you don't know something, you deserve to know it. And I love that you have the freedom Maria to ask
Suze: that question and not be afraid to ask one of the downfalls for many people when it comes to investing is they're just afraid to ask, they get embarrassed. And the truth of the matter is there is no question when it comes to money that you should ever be embarrassed about.
Suze: First of all the same thing. So first of all, when they all know that, I think when it comes to investing in the stock market and receiving dividends, if you don't need the income from the dividends, number one, please make sure that you reinvest the dividends in the stocks that are paying you those dividends and that will enhance your return. Number one,
Suze: number two, dollar cost averaging. And the reason that I'm glad KT chose this question is in my opinion, this is the only way if you are investing in the stock market today. You should be investing in the stock market. Dollar cost averaging is where you decide on a lump sum of money
Suze: that you want to invest in the stock market. Let's just say it's $24,000. Let's just say it's that amount. Then I would have you take that $24,000 and divide it by either 12 or 24 12 months in one year, 24 months in two years. And let's say you wanted to do it over a two year period of time.
Suze: At that point, you would then take $1000 a month and you would invest it in whatever it is that you want to invest it in.
Suze: given the fact that most discount brokerage firms now have slices of stocks where you can buy very small amounts of money in any stock or exchange traded funds and you can do it for no commission. Dollar cost averaging can be very cost effective commission wise. Since if you do it online, there are no commissions, but you would take that amount of money and every month invest it when the market goes down.
Suze: Usually the price of your stocks or ETFs that you've purchased also go down when the price of your investments go down your dollars, buy more shares when the cost of those investments go up because the markets are going up your dollars, buy less shares.
Suze: Therefore, over time your dollars have averaged the cost of the investments that you are buying. And if you do it that way you then kind of average out everything and you usually come out further ahead, especially in markets that go up, down, up, down, up, down, up down. All right.
Suze: So that is what dollar cost averaging happens to be. Next question, KT.
KT: One last question, Suze. Hi, Suze. I'm looking at buying tax free Muni Bond
KT: at 4.0 interest. The bond is trading at 0.90. So the net is 4.77. Is this better than buying a 20 or 30 year bond you've been talking about, appreciate any insights. This is from David.
Suze: You listen to me David on last Sunday's podcast.
Suze: I talked about my opinion about municipal bonds. The difference between municipal bonds, everybody and a treasury is that uni bonds are issued by state and local governments either to fund their deficits sometimes or their spending, their projects like schools and bridges and things like that.
Suze: There are many states now who are in really bad financial shape and therefore there is no guarantee on will a Muni bond ever really pay off? Will it mature? There have been many times when municipal bonds have gone under Orange County bonds, the Puerto Rico Bonds, you name it, they have gone under.
Suze: So do you think David that it is worth the risk to get this interest rate? Number one
Suze: and you have to be in a high tax bracket to really make it work. But where, you know, what is the ratings of these bonds is the state that you're buying these bonds from solid in terms of their finances. Because again, there have been many municipal bond bankruptcies, however, there have never to date been a treasury bill bond or note that has not paid back.
Suze: Therefore, just depending on your situation and what you think you'll have to make the decision. You want 100% safety. I would go with treasuries if you really, really know what you're doing. You're in a high tax bracket. It's a Muni Bond in the same state that you happen to live in or you live in a tax free state. So, therefore, it doesn't matter again if you don't know what I'm talking about, listen to last Sunday's podcast.
Suze: Ok. But you best know what you're doing. It's quizz time, my dear Katie.
KT: What do you got for me?
Suze: Well, it's funny because I have two that are essentially the same, one was from Robin and one was from Anna. And both of them are asking me about making a trust, the primary beneficiary of an IRA or a 401k plan,
Suze: right? So I'll read you on this question and that will represent your as well. Robin. So here it goes: On the 9/28 podcast, Suze mentioned that the beneficiary for a 401k account always needs to be the spouse and the trust should be the contingent beneficiary. I wonder why the distinction
Suze: I have my revocable trust as the beneficiary for everything. And my spouse is the trustee right after me, followed by my sister. Is there any issue that my spouse will face if he's not named personally as a beneficiary of my 401k? And does this advice apply to an IRA as well?
KT: So what's the question?
Suze: The question is KT, I have been advising that everybody and this is what Robin wants to know as well. She just doesn't understand why. Right. The beneficiary should be a spouse. If you're married versus a trust, they don't think that there's any difference from it, especially if the trust, the trustee is the spouse. So they don't see why am I stating
Suze: that if you are married and it's a retirement account that the beneficiary should first be your spouse and then the trust. So the question is, is there any really difference if the trust was the primary beneficiary rather than the spouse if you are married?
Suze: Oh, here we go.
Suze: Why you laughing?
KT: How am I supposed to know that?
KT: Well, first of all, the trust and the, and the IRA, the other accounts are separate and there's a little bit of confusion. It's not like they're all.
Suze: You don't know the answer.
KT: I don't know the answer but, but no, wait, wait, wait, wait, the answer to Robin is no, you shouldn't do that.
Suze: The answer to everybody is no, you shouldn't do that. Let me tell you, they're two different, they're two different animals. However,
Suze: when you have a retirement account, I don't care if it's a 401k. A SEP IRA, a 403B TSP, Roth. I don't care what type of retirement account it is. A spouse has different benefits in every single situation than in most cases a trust.
Suze: You have to know for your trust to have the same benefits. If the spouse will be the trustee of that trust, you have to know that your trust is a see through trust for it to have the same benefits as if you just simply named your spouse and the benefits KT that you can do
Suze: would be, you could take over my retirement account as if it were yours.
Suze: You could take up, you could do so many things that anybody else cannot do. So there are special benefits for a spouse. So the reason why everybody that I tell you to do it that way versus having a trust be the primary beneficiary
Suze: is because I do not know for sure that you know, if your trust is a see through trust, do you even know what I'm talking about? So just to make sure that you're ok and she's like, what are you laughing at?
KT: See through trust?
KT: What does that mean? It's transparent, it's transparent. All right, I got that right. Ding ding, ding, ding, ding, ding, ding, ding.
Suze: So, but that is why you guys remember this is a podcast that talks to millions of people all throughout the world actually. So I have to give you advice that I know will absolutely protect you.
Suze: Now, if you know that your trust is a see through trust and you know that without of a shadow of a doubt, all right, the trust can be your primary beneficiary, but you have nothing to lose if the primary beneficiary happens to be your spouse and the contingent beneficiary happens to be your trust. All right, because if you and your spouse are killed in a car crash together, right? The trust takes over.
Suze: But I'm just telling you to play safe. That is why I tell you to do that.
KT: So, Suze, it's also important. What about we have many friends that
KT: have never married? They never got married,
Suze: Then the primary beneficiary. This is only for married couples, period KT. Now, for all of you, if you want, you can write in your question to ask Suze Suze podcast at gmail dot com. And if KT picks it, guess what?
KT: You're one lucky dog.
KT: You're just one lucky person.
Suze: I like that. You said you're one lucky dog. Do you remember when I would give seminars and talks? And I would ask the audience a question to stand up if they had debt and da da, da da. And then I would say to them and don't lie to me because if you lie to me, I'm
Suze: to come out there and hunt you down like the dog that you are. I remember me always saying that anyway, there's really only one thing that we want you to do every single day. And what is that? Why do we want them to say today:
KT: Today, wherever I go, I will create a more peaceful, joyful and loving world.
Suze: And if you say that every day,
Suze: we promise you, you will be unstoppable.
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