February 23, 2023
Listen to Podcast Episode:
This episode of Ask Suze & KT Anything, contains mostly rapid fire questions and Suze’s answers about Roths.
KT: Good morning Suze. Are you ready for a big walk today?
Suze: I love when Robert says, are you ready? And I go, yeah, because I'm unstoppable.
KT: She's been unstoppable everybody for the past three days. She's been clocking in at least 10,000 steps every morning on our walk. Usually after we do
KT: the podcast or after coffee, a light breakfast. And I'm loving it. I'm loving it, loving it. Loving it.
Suze: I'm I'm totally back. Alright, where are all of you? Let me tell you you are at the Women and Money Podcast and everybody's smart enough to listen and today you have the incredible pleasure
Suze: and it really is to hear KT ask me...
KT: That's me, I'm KT. And this is the ask... KT will ask Suze anything you want podcast.
Suze: And if you want KT to ask Suze anything, then send in a short question to ask Suze podcast at gmail dot com.
Suze: And if she chooses it, it will be on the podcast. Also you can download the Women and Money app and usually what happens there, you can do that by the way at Apple Apps or Google Play is that I'll go through your questions on that app under this segment here because all the podcasts are on the app.
Suze: And I usually answer you directly, just so you know.
KT: Lucky you. So and I want everyone to know lately...
Suze: Was that a sarcastic, lucky you?
KT: Lucky you, lucky you.
Suze: Wait, you did not answer my question. It sounded sarcastic.
KT: It was not, lucky you. So I want to tell everybody that today, February 23 I decided to do a little Roth theme.
KT: So many of these questions, most of them pertained to Roth IRAs,
KT: one of my favorite and Suze's favorite topics.
Suze: I love that you chose that because you know we're getting really close to April 15th when most people will be opening up their IRAs. And of course I want them to open up a Roth IRA if they qualify income wise. But anyway Miss Travis go for it.
KT: Okay, first question from Susan and this is kind of funny. She said my question is about a Roth IRA. I can hear Suze screaming.
Suze: Yeah baby yeah baby yeah baby.
KT: She said I can no longer open a Roth IRA since I earned too much money. So what are my other options? Also I contribute to both a Roth 401k. And a traditional 401k through work.
KT: My financial manager says I should put all my contributions moving forward into the traditional 401k, since I'm currently in a very high tax bracket and Susan lives in California everyone.
KT: So it said Suze, I'm confused, can you please explain one more time So I don't make yet another mistake, I regret. Explain one more time about the Roth.
Suze: So Susan, here's the problem. You say you live in California. So obviously right now you're in a very high federal and state income tax bracket
Suze: But you also say that you expect to be in a lower one when you retire. How do you know that for sure?
Suze: I don't know, I retired there for a while and I was still in equally as high of a tax bracket because of how much money I saved and the income from it and that's what I was living off of. I wish I had been able to put all of my money in a Roth retirement account because here I am now, one year away really from when I have to start taking required minimum distributions at 73.
Suze: And I'm gonna have to pay taxes on it and I'm still in a high income tax bracket. So given your 64 we don't know how long you're going to absolutely work. I still like Roth IRAs. I like Roth 401ks. You don't qualify for a Roth IRA who cares, you can put a whole lot of money in a Roth 401k.
Suze: I just like them. I always will. I don't care about saving taxes today because when you save taxes you usually just waste that money.
KT: Next question is from Marie. Hi Suze, I encouraged my grandson who is 18 to open a Roth IRA. My suggestion is to invest in the Vanguard target retirement date fund. Is this a good choice for him? Any other suggestions would be appreciated. Suze, remember when Travis open his first account? He's doing great now.
Suze: Doing great now, but I did not have him invest in a target date retirement fund. Because at 18, he's not going to be retiring, my dear Marie for a good probably 50 or 60 years. Who knows by then.
Suze: Therefore I'd rather see him invest dollar cost averaging into like the Vanguard Total Stock Market Index fund or ETF. And just have him put in a small amount of money every single month for the rest of his life. And oh my God, bingo! He'll hit the jackpot. Go KT.
KT: Nice, The next question is from Scott. Suze, I have a question about my Roth IRA, I'm 12 years older than my wife. If I pass away and she is the beneficiary, can she immediately access that money?
Suze: Yes. Next question, KT. Let's go, let's do a rapid roth.
KT: Roth, rapid Roth, rapid Roth rapid Roth. I can say it forever. Rapid Roth, rapid Roth, rapid. Ok, this is from Sam. Hi ladies, would I be creating any problems if I put my converted Roth IRA into my existing Roth IRA?
KT: My existing Roth IRA only has money that I contribute into it or should I open a separate Roth IRA for my converted Roth?
Suze: No, you won't get into any trouble at all. Put your converted Roth into your contributory Roth. That's absolutely fine.
KT: Next one, Donna, I opened my first Roth RA over 20 years ago with Fidelity. Since then,
KT: I've transferred it multiple times. All the while adding to it. Does the five year rule reset each time I move to a new financial planner or a new company?
Suze: No it does not.
KT: Oh there you go. Next question. So this is from Rhonda. Hi Suze. When I retire fully at 67, which will be 2027. The year 2027. How much will my social security and retirement be taxed?
KT: I just cannot imagine working until age 70. I'm an RN and nursing is cruel to the body. Also my life insurance is through work. She said that she's concerned, will she
KT: have enough insurance to cover her after retirement?
Suze: So you gave me easy ones and now you give me kind of a hard one which is... So Rhonda, here's what you need to know your retirement account. If it is not in a Roth retirement account, it's absolutely going to be taxed as you withdraw it according to whatever your income tax bracket is at that time.
Suze: Social security is taxed if you make over a specific amount of money like currently for 2022 and they haven't come out yet with the 2023 figures. But you would take half your social security plus your adjusted gross income. And if that adds up to more
Suze: than 25,000 to 34,000 and you're just filing single, you're going to owe up to 50% tax on whatever your social security is. If you make above 34,000 then 85% of your social security will be taxed. So if you are married filing jointly
Suze: and you make between 32,000 and 44,000, then up to 50% of your social security will be taxed. Over 44,000, 85% will be taxed. The second question actually is far more interesting. I'm sure for everybody. You're unsure which insurance company will cover you after retirement. What you have to know is once you retire
Suze: you're going to even before you retire if you want, you can be covered with what? Medicare and Medicare obviously will cover you no matter what your pre-existing conditions happen to be as long as you sign up for Medicare A and Medicare B. Then you will also sign up for Medigap insurance.
Suze: Now in some cases, Medigap insurance can refuse to cover your out of pocket costs for those pre-existing health problems, but only up for six months and so therefore after that you can be totally covered.
Suze: So you have to look into all of this and there's many, many companies that will just cover you from day one with pre-existing conditions. However, I just have to say this and I know this is supposed to be rapid fire if you go from Medicare
Suze: and now you decide to go to Medicare advantage for whatever reason Medigap does not have to take you really and if you switch from Medicare advantage back now to Medicare now you are not automatically elligible
Suze: for Medigap. So you should under no circumstances do anything other than Medicare part A and B.
KT: Next is from AJ. This isn't a rapid fire because this one I want you to think about. I don't like this question.
KT: He says Hi KT and Suze. I love love love all the videos and updates. I'm living vicariously through you these days. So AJ says I'm expecting to inherit some money from my father's transfer on death account
KT: which is at a full service non discount brokerage firm. Listen carefully what AJ says Suze. It's my understanding that I must open an account at my father's full service non discount brokerage firm in order to receive the money.
KT: If that's the case can I just transfer those securities to my own account at a discount brokerage. My father has two accounts, a traditional IRA with beneficiaries and an investment account. T. O. D.
Suze: Transfer on death.
KT: Okay, so AJ is a little confused, but I don't I never heard that you have to open it.
Suze: Well what happens if it's at a transfer on death account then it transfers on death. And the brokerage firm of course wants to transfer it into
Suze: an account at their place. Once it transfers then AJ can take it and transfer it to any place that AJ wants to. And that also applies to your inherited IRA as well. Next one, KT.
KT: Next question I have is from Laura. Hi Suze and KT. My husband had bought two Prudential policies in 1985.
KT: He's still paying them both. He is 58. I am 54.
Suze: This is not going to be a short answer just so you know go on.
KT: He's 58. I am 54 and I am the beneficiary. A whole life policy with a death benefit of $100,000. Ready for this Suze. No no don't comment yet. We pay $976 a year. Wait Suze.
KT: As of now we have $198,000 as a death benefit and a cash value of 90,000.
Suze: That sounds good to you, right?
KT: No 1985. Do the math.
Suze: I'm going to do the math.
KT: ...And a variable life policy with a 30,000 death benefit. We pay $474 a year. Don't have the cash value.
KT: My husband currently has... ready for this... $350,000 of term life insurance with his job until he retires.
KT: Do we keep both policies or cash one or both? We want to have some life insurance after retirement.
Suze: And why is that?
KT: I don't know I was going to say. Why what do you think? Thank you both. So you've got to do some math here first explain.
Suze: So here's the thing Laura. Why do you have it in your head that you want to die with life insurance. I want you, when you die and when you live
Suze: forget dying. Let's talk about living here for a second. Alright. I want you to have money. Money to live on. I mean why do you want to have life insurance when you die? What is that all about? So anyway, let's just do the math here.
Suze: Your husband was 20 years of age and I'm only going to deal with the whole life insurance policy because I don't have enough info on the variable life insurance policy that you have. But I can tell you I don't like them. Okay. But I can actually do the numbers because you gave me the numbers that I need to tell you what you need to know.
Suze: First your husband who's 58 now has owned this for 38 years. He was 20 years of age when he bought it.
Suze: If he had simply taken $976 and invested it every single year for 38 years, even in a savings account. And let's just say he got 5% for it. That's all right. He'd have $110,000 today. But yet you only have $90,000 of cash value.
Suze: But over 38 years, your husband probably would have been smarter than just leaving it in a savings account and he probably maybe would have put it into the stock market or something. Let's just say he earned about an 8% annual average rate of return.
Suze: But I can tell you over all those years, it probably would have been more like 10, 11 or 12% annual average rate of return. But just let's say 8% annual average rate of return, you now would have $232,000.
Suze: Do you understand why insurance is so profitable for the insurance company? Because even though they increased your death benefit from 100,000 to $198,000. Number one, you have to die to get that death benefit. Alright. Number one. But they made far more than an 8% annual average rate of return over all of those years.
Suze: So even if they were going to give you 198,000, they made probably 3, $400,000. So they doubled their money. Do you understand that?
KT: So that's why you don't like whole life.
Suze: But here's the way I want you to look at it.
Suze: All right.
Suze: Another thing is if he simply invested $976
Suze: over his entire lifespan and let's say he's just gonna live till 85, he'll probably live longer. But just let's say that was true. And over all those 65 years he invested $976 at 8% annual average rate of return. Do you know that he would have $2 million,
Suze: $2 million. I just want you to think about that.
Suze: And what are you going to get as a death benefit at that time? You're not going to get close to $2 million. So here's what we need to think about over the years, the 38 years that he did put in 976, that would come out to $37,000. If your cash value today is $90,000 and you cashed it out,
Suze: assuming he's healthy, you don't have any pre-existing conditions. Everything is good and you decide to cash it out.
Suze: You would owe taxes on $53,000. So you have to take that into consideration because the $37,000 that he put in grew to 90,000. Okay.
Suze: Let's assume that he would pay 25% on that.
Suze: So that would be $13,250 in taxes. So that would leave you $76,750. Okay. Have you all taken out by the way, your Suze Notebooks? Are you writing down all of these numbers? Because go back and listen to this again and write the numbers down and you'll see why I don't like whole life insurance. Alright, so
Suze: You take out $90,000, you will owe taxes on $53,000 which is $13,250 in taxes at the 25% tax bracket, which leaves you with $76,750.
Suze: You add $976 a year to that for the next 30 years. Why is that? Because that's when maybe he'll probably die around 88, 90 if he's healthy. That's his average life expectancy at this point in time. Alright. At an 8% annual average rate of return, which you will absolutely somehow be able to get over the period of time,
Suze: you wanted to have a life insurance policy. Maybe you wanted to have that life insurance policy because you want to leave money to the kids. Let's just say that's true,
Suze: let's say you invested that money
Suze: and now your husband dies and now you inherit it or your kids inherit it.
Suze: Because it was just in his name. You get a step up in cost basis on it and therefore you can sell everything and not pay one penny of income tax so that $891,718. Do you really think that your life insurance policy is going to pay you anywhere close to that?
Suze: So you can keep this if you want. But if it were me and he currently has a $350,000 term policy and he is totally healthy and you don't really need the death benefit because you would be okay financially speaking. If he were to die right now,
Suze: then I would be putting this money to work for me. Big time.
Suze: Big time by doing what? Cashing it out, paying the income tax on it, then investing it and keep putting the $976 a year into it as well. That's what I would do. If I were you, I'm sure if you did the numbers on your variable life insurance policy, they would be the same. But KT, guess what time it is?
KT: Quizzie Time.
Suze: Now this is a long quizzie.
KT: Wait, tell everyone what the quizzes are. If you're tuning in for the first time. Okay, so at the end of the podcast, Suze finds a question and she makes it the quizzie, and sees if I can get it right or wrong. Whatever happens, she mostly wants me to get it right. But she said all of you listening also play along to see if you can get it right. Getting it right is not easy everyone.
Suze: And sometimes the quizzies are factual. They're can you put Roth converted the money into a contributory Roth? Yes or no, very easy. Okay, sometimes they require a little bit of thought because they're more ethical in nature and emotional in nature and that's what this one happens to be.
KT: I usually get them right.
Suze: The emotional ones?
Suze: Hi KT and Suze and chickens. That's why I loved it because every morning we get up really early and the first thing we do is we go run to feed our little chickens? That we have.
Suze: Yeah, they're now eating out of my hand.
KT: They eat out of her hand. And then she wears sandals and if she sits down on a little stool, her toes like come on feed us mom and they pick on Suze's little toes, it scares her.
Suze: Anyway, Hi KT and Suze and chickens. I have a question that involves ethics and math. I really need your help.
Suze: My mother is 72, get out your notebooks, write these things down. My mother is 72 and retired. She owns her home. She has about two million in savings and the interest from that account, combined with social security is enough for her to live on comfortably. She's in good health and is a very lovely person. I'm 38 and married
Suze: In the next few years. I would really like to move so that my kids can attend a better school district.
Suze: The problem is that the mortgage we have now is at 3.375%. And at the current mortgage rates, that would mean that buying a new home at the new rate would make our monthly payment almost double. We can't afford it.
Suze: I asked my mother if she would consider selling us a mortgage. She said yes before I could even finish asking the question, like I said, totally lovely. But here's my question, what should the rate on that mortgage be? I'm not sure what she's earning at her current bank, maybe 4%.
Suze: Does that mean that our mortgage should be at that rate? What if interest rates increase? And it turns out she's earning less from our mortgage than she would have earned in a savings account. Does that mean I should change the interest rate every year? But changing numbers might make it hard for me to budget. Help. Thank you so much. I love you guys, your friend Lee. So what should we tell her?
Suze: Everybody think about it. Mommy is only 72. Mommy is essentially my age. Mommy is retired. She owns her own home outright, has two million in savings and lives off of the interest of that account combined with social security.
Suze: Again, the reason Lee wants to move everybody for a better school district totally get that right. However she has a great rate on her mortgage right now. Probably in a year or two seriously more
Suze: rates could very easily be at 7 7.5% because interest rates are still going up if you ask me and I don't think real estate is in many areas is still going down. There are many areas, San Francisco um you know all kinds of places that real estate is going down but maybe not for Lee. So Mommy wants to do this. Mommy wants to help her daughter.
Suze: But lee is worried...
Suze: What if interest rates go up and mommy could be making six or seven or 8% on her.
KT: I wonder if she could go like do halfway.
KT: You know, why does she have to sell like the whole mortgage?
Suze: Well, you know obviously Lee's got to have some money, you know, she's going to sell her house obviously who knows what the mortgage amount will be, but it's going to have to be for the entire amount. Most likely.
KT: I don't know what I would do. I think that Lee wants to be responsible and not want to...
Suze: Let me make it easy for you. The question is as you know, should she do this? Yes or no?
KT: Should her mother do this?
Suze: No, her mother wants to do it. Should Lee do this? Yes or no. What are you all saying? Everybody, if you're in the situation, Lee was your daughter?
KT: I would say no. I just don't think that she wants to risk money coming between her and her mother's security while her mom, who's only 72, that's really young. She's living off the interest of her $2 million savings and social security, right? Yeah. She owns her home outright. But um, I would say no.
KT: (Suze says Ding Ding Ding!) Good. Yeah, I think we both agree on that. She's 72.
Suze: Obviously, I agree since I just dinged you. So here's the question. Everybody. How did you answer that?
Suze: Now Lee, let me answer it for you directly. And here is the reason why: Mom is still very young, Mom's going to get older and as mom gets older it is very possible that Mom may need to go into an assisted living facility. She may get sick. Maybe she has to go into a a skilled nursing home we don't know.
Suze: And nursing homes or in home care can become very, very expensive to the tune of possibly $10,000 a month. Then all of a sudden
Suze: there's not enough money because Mom may need the principle that she lent you to buy this home and now you're freaking out, she's freaking out, you're feeling bad and or you my dear Lee get sick, you are in a car accident,
Suze: something happens to you and you no longer can earn money so you can't afford to pay mom back the interest anymore through the money that you were making, there are too many unknowns here. If you had simply
Suze: said that she has about two million in savings, she doesn't need the interest on it. It just sits there. She has enough income from other places and she's totally fine and everything and maybe you are going to do it for like you know 2 or $300,000 I'd say okay
Suze: but not in this particular situation. So are you better off like really starting to save right now? So you can put more money down or you stay where you are
Suze: and your kids go to the school that they go to now. I just have to say...
KT: Wait, Lee I have an idea Suze. Stay where you are let the kids finish school and grandma can afford to maybe help them in a great college which might be...
Suze: Yeah or maybe it's easier for granny to pay for a private school for them or something.
Suze: That's what I would probably do if I were you. But I would not be... because you have too many questions. You care too much. You love her too much. And if anything goes wrong, I'm telling you because I've seen it go wrong will break your heart. Not in this situation. But I also just want to say something to you about school systems. I grew up on the south side of Chicago. As many of you know,
Suze: I would probably venture to say I did not have a great
Suze: education by any means in my opinion. For many, many reasons. Grammar school was not that great. High school was actually horrific. Truthfully. Um for many reasons as well. And look at me today.
KT: Look at KT. Public school baby.
Suze: Yeah. Just know that I know as a parent you always want to go and give your kids the best schooling and the best education. But if you can't afford it then don't. It's just that simple.
Suze: Alright that does bring us to the end and all of you know, I'm just going to say something here. You have got to tune in to Sunday's podcast. Because the certificates of deposit from Alliant Credit Union will be available, but there will be a special URL
Suze: for you to use. You are going to love the interest rates on the three and six months. They are exactly what you want. And so just stay tuned for a few more days and I will tell you exactly how you get them and you're gonna you're just gonna love it
Suze: because I can tell you I love it. So, for those of you who are looking for certificates of deposits, I helped create them for you at Alliant Credit Union. So stay tuned. Alright, KT, are you ready to take us out?
Suze: So here's what we want you all to say
Suze: every single day. So say it with us today, wherever I go, I will create a more peaceful, joyful and loving world. Remember when you do that, you really are unstoppable.
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