Podcast Episode - Ask Suze & KT Anything: Should I Take Money From My Roth to Pay Off My Heloc?


Estate Planning, Student Loans, Students, Taxes


July 06, 2023

Listen to Podcast Episode:

On this Ask Suze and KT Anything episode, Suze answers your questions about student loans, trusts, annuities, taxes and more.


Podcast Transcript:

p>00:00:01

Music: Music (in).

00:00:35

KT: Good morning, Suze.

00:00:37

Suze: Don't make me laugh before I even start.

00:00:38

KT: Good morning Suze...

00:00:41

Suze: July 6th, 2023.

00:00:45

KT: Oh, it's Amy's birthday.

00:00:47

Suze: But wait, KT.

00:00:50

KT: Ok. And it's welcome to the Women and Money podcast. Ask Suze anything via KT! and it's Amy's...

00:01:00

Suze: It's gonna be one of those days... stop for one second. Welcome everybody to the Women and Money podcast as well as everybody smart enough to listen. Today is Ask KT and Suze Anything. And here's what's really important about today. It's Amy Feller's birthday. Now, why are we making such a big deal about that?

00:01:24

KT: Because we have celebrated

00:01:27

KT: my goodness, probably almost 20 years of birthdays with Amy.

00:01:32

Suze: Amy Feller was the executive

00:01:33

Suze: producer of the Suze Orman

00:01:36

Suze: show and we've been through so much together and we are still really, really

00:01:43

Suze: great friends.

00:01:44

KT: She does not like to celebrate her birthday. She does not like to be in the center of attention like me and we wish you were here fishing with us, Amy.

00:01:55

Suze: We love you, Amy. So, all right.

00:01:57

KT: Have a great day.

00:02:00

Suze: Ok. KT, where are we going today?

00:02:02

KT: Ok. Well, our first question is from Joshua and it's, this makes me sad. And this is right up your alley, Suze, you are the expert of student loans.

00:02:13

Suze: Actually Mark Kantrowitz is. But that's besides the point.

00:02:14

KT: Well, you and Mark. So this is...

00:02:15

Suze: No, I am not in the league of Mark just so you know he is over the top brilliant.

00:02:20

KT: Ok, so this is a hi KT and Suze.

00:02:23

KT: Suze, It's such a disappointment on the SCOTUS ruling regarding student loans seems like a disappointment on all their rulings as of recent, my question is relating to advice on paying back the amount that was supposed to be forgiven.

00:02:40

KT: I had $16,000 refunded back to me since that was the amount I had paid during the COVID student loan freeze. That amount was added back to my loan which still had an existing $13,000. Thus my outstanding loan amount is now 26,000.

00:03:00

KT: But now that Biden's student loan forgiveness has been overturned. I don't know if I should pay back the 16,000 that was sent back to me or hang on to it or pay some of it back. I have the money sitting in my Alliant ultimate opportunity savings account getting a high interest rate, but my student loan interest rate is 5.5% Suze, what should I do?

00:03:25

Suze: I don't like to comment about what's happening in the United States right now with the Supreme Court,

00:03:31

Suze: but especially for people like me and KT and the students out there and many other things, I just think it's a travesty. What can I tell you the ruling is the ruling. So now what do we do for those of you who don't know,

00:03:50

Suze: you are going to have to start making student loan payments again. October 1st of this year, interest will start to accumulate as of September of this year.

00:04:05

Suze: So there will not be any student loan forgiveness. You are going to have to pay it for those of you who have been on a moratorium and you haven't been paying your student loans because you haven't had to, you are now going to have to but in relationship to you, Joshua,

00:04:22

Suze: I know, I know, however, you are at least lucky enough to get $16,000 that was sent back to you that has been sitting where it's been sitting in an account making interest at Alliant. So that's a gift to you and now we just start all over again. So what do you do? You take that $16,000 and you pay it directly back to your student loan since it's the highest interest rate, I'm sure out of anything that you are paying

00:04:52

Suze: and therefore you just start over and therefore you're gonna go back to having only $13,000 of a student loan versus 26. And I think you'll feel better about that. You just have to do it, boyfriend. All right.

00:05:11

KT: All right, Suze. Next is from Tori.

00:05:13

KT: Help. It took me years to convince my parents to put their home in a trust from the must have documents and now my dad wants to remove it. His friend, a former finance executive who knows a lot about this stuff. She writes his words, not mine

00:05:34

KT: is removing his own home from his trust because he says the trust is not a tax advantage, therefore not worth it to his family. Now, my dad is considering doing the same and he has a tendency to make rash decisions. I tried to explain to him that the main benefit of having a trust is the incapacity clause, but I also know it would help us avoid the hassle of probate.

00:06:01

KT: Now, she's from the state of Tennessee. Suze, probate takes 6 to 12 months in that state. So Suze, how can I convince him that removing it is a bad decision? Can you explain the tax implications if my parents decide to sell the house before they die as well as the tax implications

00:06:20

KT: if they die while they're still homeowners, financially speaking, with the capital gain cost, exceed probate fees. Is there any way to reduce the taxable gains, for reference, their home has increased in value, by 400,000 since the purchase.

00:06:39

Suze: So many questions here. This is the entire podcast. Everybody. Right. And

00:06:48

Suze: just because somebody is a financial executive doesn't mean that they make wise financial moves. I personally have counseled so many people in the financial industry that have made serious mistakes. They didn't know this, they didn't know that. And the realm of personal finance, what you do personally,

00:07:13

Suze: which is what my expertise is, is an area that nine out of 10 of the professional finance so-called people have no idea. Picking a mutual fund or a stock is very different. Then, should you have a Roth IRA? Should you have a trust? What do you do with the 529 all of that.

00:07:34

Suze: So Tori maybe, you know, your father can listen to this podcast because dad here's the thing, let's say you've listened to somebody and they've said that there's no tax advantage to it. Well, of course, there's not, there never is a tax advantage when it comes to revocable living trust. That is not why you do it.

00:07:59

Suze: But the fact of the matter is there's no disadvantage to it at all when it comes to taxes. Because when you have a living trust, you pay the exact same taxes as if it were you without a trust. So this so-called wizard that happens

00:08:16

Suze: to be advising you is now going to take the steps and convince you to take the steps to take the house out of trust, do all of this for what, what do you gain nothing. What do you lose so much? I can't even begin to tell you.

00:08:34

Suze: So, what you have to understand is that if you go to the trouble and you take this out of trust, who you are hurting seriously, are your children. Because given the fact that it's increased in value by $400,000 that means probably it's worth a million dollars now

00:08:58

Suze: and they're gonna have to pay probate fees on a million dollars. Are you kidding me? Why would you want your Children to do that tax advantage?

00:09:08

Suze: That's what you're worried about. No, not on any level. What Tori is telling you is true.

00:09:18

Suze: The house is in trust. Can you do me a favor? Can you just simply leave it there, Sir? Don't listen to somebody who doesn't know on any level what they are talking about. And if I sound aggravated right now, it's because I am

00:09:35

Suze: because you are about to make one of the biggest mistakes you have ever made under the guise of somebody who you think knows what they are talking about. I don't know. My reputation is the personal finance expert of the world. I think you should listen to me.

00:09:51

Suze: So hopefully Tori, this has convinced him from making one of the worst decisions in his life. You then go on to ask, can I explain the tax implications if my parents decide to sell the house before they die. Yeah. Whether it's in trust out of trust makes no difference at all. So they will get a $500,000 exemption, $250,000 for each of them.

00:10:20

Suze: So, therefore, if they sell the house while they're alive and it's only increased by $400,000 in value since they purchased it, there is no taxes that they will owe whatsoever. Got that. Now, you're asking what are the tax implications if they die while they are still homeowners? Nothing

00:10:42

Suze: because here's what's gonna happen. You get to have the trust without going through probate. It will be yours in about two weeks after they die. You immediately get a step up in cost basis as to whatever the value is of the house when they die and if you turn around and sell the house, you have absolutely no taxes on it whatsoever if you do it at that time.

00:11:09

Suze: So you're asking me financially speaking with the capital gains cost, exceed probate fees. There aren't going to be capital gains cost in either way. So, yeah, your probate fees are going to be exorbitant. My dear, one has nothing to do with the other. So when you say, is there any way to reduce the taxable gains? Yeah, just leave everything exactly like it is.

00:11:39

KT: I hope you get your daddy to listen to that.

00:11:43

Suze: Listen to everybody. You better check when you're getting advice from somebody who's in the quote financial area or a financial executive. What does that even mean? Right. You better check it twice. A living revocable trust is one of the best things in most cases, every single one of you could ever have. But then you know how to do it if you've been listening to this podcast. All right, KT,

00:12:10

KT: Next question is from John.

00:12:12

KT: I am over 62 and I want to take some college classes. Can I open a 529 plan for me? And then what I don't use, give to my beneficiaries thinking fidelity is a good place to open one. Thanks from John.

00:12:29

Suze: So John, I answered you very quickly. Actually, I personally answered you and I said, yes, you can do this right. However, you can open, anybody can open a 529 plan

00:12:42

Suze: for themselves and they can also, obviously they're the owner of it. They can also be the beneficiary of it, right. But what you don't use can be transferred to a beneficiary who, who can then only use it for a college expense as well. I don't know. I think at the age of 62 seriously and you plan to possibly take some college

00:13:08

Suze: classes, I personally would just simply do what pay for the college classes outright over. And if you want to leave money to beneficiaries, just leave it to them that way, not through a 5 29 plan.

00:13:25

KT: Next is RJ.

00:13:27

KT: It seems to me that the high interest rates are available for short term CD S3 to 18 months if I want to invest for 3 to 5 years, I believe that MYGAs multiyear guaranteed annuities might be a way to go. I know that I will basically tie up the principal money because of a surrender charge schedule. What about the

00:13:53

KT: rating of the companies? Do I look for a plus and up or lower is ok.

00:13:59

Suze: All right. Listen to me, let me just answer this very quickly, which is don't do this. Can you just do me a favor? RJ? Why? Who gave you this idea? Multiyear guaranteed annuities are just simply annuities and you know, I don't have a problem with annuities if they're single premium deferred annuities, but a multiyear guaranteed annuity is where

00:14:19

Suze: essentially it's a CD where it goes out multi years and they give you X interest rate on it fine. But there's also a surrender charge. They're also when you come out tax as ordinary income, the interest and it's not, listen, I can go on and on. Just do me a favor if you're looking for long term, if you want to invest for 3 to 5 years, get a 3 to 5 year certificate of deposit or get a 3 to 5 year

00:14:45

Suze: treasury note. But can you just stay away from annuities? They make absolutely no sense in this situation, especially because they are not FDIC insured or NCU A insured. Are you kidding me? Don't do it. RJ KT. You see, I'm in such a mood now. All right.

00:15:04

KT: Wait, this is good because I'm gonna get through a lot of questions. This was from Jonathan first. Let me give you some good news. He said, Suze,

00:15:11

KT: thank you for the FreeVee Suzie Ormn shows. I love watching them. So all of you, you can watch Suze's shows on Amazon FreeVee. It's Fabulous. Just go there and pick anyone you want.

00:15:23

Suze: Now, we had all 600 shows and somehow we were smart enough to own all of them. So now you are able to see them on Amazon's FreeVee. V. bulous. Ok.

00:15:34

KT: So Jonathan is 32 years old. He has

00:15:37

KT: a will medical power of attorney with an incapacitation clause and an advanced directive that he did a year ago with an attorney. However, the question is I don't have a revocable trust if I were to purchase the must have documents with the revocable trust on Suze's website. Would that null and void my previous will, Medical power of attorney? So on and so forth.

00:16:03

KT: All he wants is he needs the revocable trust.

00:16:06

Suze: Now, you can just get the must have documents. Obviously, you can go to my community app, look under Suze shop or go to Suze Orman dot com slash offer. You can get them there. Obviously, they're offered through Hay House, but here's the thing. $99 2500 dollar value,

00:16:30

Suze: the way that Hay House who created these structured it with the lawyers, they structured it so that when you did it, Jonathan, you did all four at once. So you can do all four, not gonna take you any more time as if you just did the trust and

00:16:50

Suze: you can only use the trust. You don't have to get the other ones notarized and validated. Ok, so you can use the program. It'll give you all of it, but again, just do the trust fine. Just get the trust notarized and that's it and it will not invalidate your other documents.

00:17:10

KT: This is from Hiromi. Hi, KT and Suze and Robert.

00:17:15

Suze: Robert. By the way, they want to see pictures of you at this, at these concerts that you're going to. So you best have some so I can post it on the community app.  All right.

00:17:25

KT: My name is Hiromi. I have a quick question. I am 57 years old. I lost my husband

00:17:32

KT: years ago. We bought the house where I live now 20 years ago for $400,000. The house is now worth over 700,000. I didn't want to move the last 10 years after he passed. However, I missed the two years of surviving spouse, capital gain tax exclusion.

00:17:54

KT: Is there any way I can avoid capital gain tax? Do I need to pay tax on the gain?

00:18:01

Suze: You say in here because KT just handed me your email that the house is currently worth over $700,000 currently and that you bought it 20 years ago for 400,000. So Hiromi . What you need to understand is all right, you have 400,000.

00:18:22

Suze: You add your 250,000 exemption that you can do, thats 650 I'm sure over the 20 years you have had improvements to the house, whether it's a new refrigerator, a new roof, whatever you can add that on to it,

00:18:39

Suze: along with whatever commissions you pay to sell it. And I have a feeling you're not going to need to pay a whole lot of capital gains tax at all. If any, you also have to remember if you earn less than $44,000 a year,

00:18:58

Suze: you don't pay any capital gains tax on any money that you have as a capital gain. It's just how it works. And so for those of you who also need to know what that meant that she went past the two year exclusion. If you have a spouse, you own a house with your spouse, your spouse dies, you have two years after your spouse has died to get that $250,000 of a credit

00:19:26

Suze: when you sell. If you've lived in that house for two out of the past five years, as both of your primary residencies. All right.

00:19:35

KT: Ok. Next question is from Cheryl.

00:19:38

KT: Hello, Suze Rockstar Orman. That's really what she wrote.

00:19:42

Suze: You know, if I could sing. Right. KT,

00:19:46

KT: I would want to be a rock star

00:19:48

Suze: I, I'm not joking. I would be a serious rock star. All right.

00:19:54

KT: Go on. Hello, Suze. Rockstar Orman. I have been with you for many, many years. You are the reason my husband who's now retired and I paid our house off

00:20:04

KT: different subject. Now, what do you think about gold IRSA just learning about them and was curious what you, the expert thought about them.

00:20:14

Suze: I don't have a problem with you owning a gold stock or a gold ETF within your Ira for you to own actual, the commodity of gold within an IRA is absolutely something Cheryl.

00:20:30

Suze: don't want you to do when you own the actual commodity, there are storage fees. When you go to sell it, you have to have it re-asses it. It makes absolutely no sense rather than owning the actual metal. If you want to own gold, do a gold stock or an ETF that's in gold. Stay away from the actual precious metal itself. Yes. KT. Ok.

00:20:55

KT: From Brooke.

00:20:57

KT: Happy Summer. KT and Suze. I, I kind of went to all the headlines. The salutations are really fun. This podcast. Happy Summer. My question is about leaving jobs and switching retirement accounts. I left my school job where I had a pension and Roth 403 B to start my own

00:21:18

KT: private speech therapy practice. I wanted to roll over the Roth 403 B into a Roth IRA. My question is, can I still contribute $6500 to this plan if I'm doing a rollover? Also, I'm assuming my pension money needs to go into a traditional IRA

00:21:40

KT: account. Is this correct? I'm 28 and moving to sunny Florida.

00:21:47

Suze: So listen, Brooke and all of you that are listening right now. All of you seem to be confused thinking that if you convert money or roll over money into a Roth account, that means that you can't put any more money into it as a contribution wrong.

00:22:09

Suze: It doesn't matter how much you convert or roll over, you still can absolutely put the $6500 as a maximum into the Roth IRA. And by the way, the rollover can be the same as your contributory Roth. Just so you know, your pension. Yes. Needs to go to a traditional

00:22:32

Suze: IRA. Simply because you don't want to pay taxes on whatever the pension would be after. It's in the pension. If you want little by little, you can convert it to a Roth IRA. Now, in the email KT just gave me, it says you're only 28 years of age and moving to sunny Florida. Yeah, girlfriend smart.

00:22:55

Suze: Right. So what you need to understand is start converting now, if you can convert the traditional IRA little money little money, little money every year. Oh my God. That money will start to grow tax free for you in every possible way and you will win the financial jackpot. You got any more for me.

00:23:17

KT: This is from Angela. I really like this one

00:23:20

KT: because there's one sentence in it that would give me the, give me the answer that I think you're gonna give her ready. Good morning, Suze and KT. My question is in regard to cashing out mutual funds to pay off my husband's student loan debt. The payoff amount of the student loan is $129,000 with a 3.38% interest and a monthly payment of $851.

00:23:48

KT: It's his medical school debt that we've had for years. Now listen to this everyone. He's 45 years old. He has a successful medical practice and an annual salary of about 275,000.

00:24:03

KT: This is our last debt other than our home and we have enough in the mutual funds to cash out and pay it off. The part we're struggling with is the taxable event this will create. Plus when we cash out some of these funds, we may be selling at a loss. We both love the thought and feeling of being free from this student loan debt

00:24:28

KT: and having one less monthly bill. But we're unsure of how bad this can affect us taxwise. What should we do? Suze. There you go. And then she has details about the mutual fund. But what should she do? That last sentence to me was the answer.

00:24:44

Suze: She says that these mutual funds are in non retirement accounts. So is it possible Angela that some of the mutual funds that are down in value right now

00:24:57

Suze: you would sell and take a tax loss on it to offset some of the mutual funds that you have a gain in. So let's just say you sold funds that you had a $50,000 gain in. But then you sold funds that you had a $50,000 loss in that would offset each other. So there would be no tax ramification to you whatsoever. How ever I don't care about the taxes right now.

00:25:25

Suze: I care about that. You just continue to pay off this student loan at 3.38% interest. It's not that high of an interest rate right now because I think given that you're still both so young

00:25:41

Suze: that the growth of the money in these mutual funds, if the money is invested correctly will so outweigh you getting rid of this $129,000 of debt at 3.38% interest. It's not a big deal at $275,000 salary and everything. If you want to start paying it off a little bit faster. Ok.

00:26:09

Suze: But I would not be selling mutual funds, right. Now to do. So, if you had money that was just sitting around and it wasn't making a lot of money. It was just like in a savings account or whatever I say, do it, but not investment money. No, that's what I would tell you financially

00:26:28

Suze: however emotionally if it is really bothering you and it is weighing on you and it is depressing you and it's making you feel insecure, go for it, girlfriend. But then see a tax person so they can tell you which you should sell so you can offset and get the least tax ramifications possible.

00:26:51

KT: Ok. You got a quizzie for me?

00:26:53

Suze: Is that everything?

00:26:55

KT: That's it. You got a quiz for me?

00:26:57

Suze: I have an interesting quizzie for everybody. All right, here we go. So for those of you who don't know a quizzie is where I ask KT a question and it's a question that I want all of you to be able to answer. And sometimes there are questions strictly about money.

00:27:17

Suze: Sometimes there are questions about relationships. Sometimes there are questions about who knows what, but they're all related to money and truly the foundation of money. So, KT today's quizzie actually is from the wall. So you may have already read it just so you know.

00:27:39

KT: If I did, I'll fess up and tell you all right.

00:27:41

Suze: Now before I even read this to you, I just want to say something about the wall

00:27:45

Suze: and that is, I love how all of you are helping one another and you're all answering one another. And if you don't know what I mean by the Wall, the Women and Money podcast has a women and money community app. You can download it for free by going to Apple Apps or Google Play. And on the wall there, we post things, the community writes and answers and helps one another. And it's really a fabulous community. But I just want to say

00:28:14

Suze: if you get an answer from anybody other than me,

00:28:19

Suze: you just have to check it out because I don't have time really to monitor all of the answers that everybody's giving you. And some people have been feeling a little bit like, oh my God should. Is this true? Is this not true? So just take everything with a grain of salt and check it with a true professional before you take action. The quizzie  is this KT

00:28:47

Suze: In one of the recent episodes, you advised someone not to cash out some of their pre tax 401k to pay off their HELOC because they would have to pay taxes on that money. My husband and I have Roth 401k s and are still 25ish years away from retirement. We have a HELOC that has gone and a HELOC everybody is a home equity line of credit,

00:29:17

Suze: that has gone from 3.1% to 8.3%. KT's face. KT, do you remember me months ago? Saying pay off your home equity lines of credit.

00:29:27

KT: You were

00:29:28

KT: warning everybody that. But who knew it would go from 3.1 to 8.3. And

00:29:35

Suze: believe it or not, it's,

00:29:37

Suze: if they raise, if they raise the fed funds rate again, it will go even higher. All right. And it's about $45,000. Ok. We have a plan to pay it off by 2025. But I'm wondering if it makes sense for us to pull money out of our Roth to pay this off now and then put the monthly HELOC payment back towards funding our 401k and emergency fund.

00:30:06

Suze: Are we sabotaging our future retirement fund by taking that money out? Now? Thank you for all your advice.

00:30:15

KT: Did, did they say how old they are?

00:30:17

Suze: They're about 25 years away from retiring.

00:30:20

KT: All right. Definitely pay off the HELOC is my advice for sure.

00:30:25

KT: Absolutely, Suze

00:30:29

Suze: Is that...

00:30:30

KT: That's my final answer. They have to get rid of this. They have to get rid of it. They have 25 years before they need to retire. They can, they can fill that up again the Roth they need to, they need to get rid of that loan.

00:30:45

Suze: So, what would Suze Orman say?

00:30:47

KT: Get rid of the HELOC. (Suze makes the wrong answer noise)

00:30:49

KT: Oh, you're kidding me. I was almost 100% certain you wanted to get rid of that HELOC.

00:30:57

Suze: But here's what everybody needs to understand. Ok. First of all, the 8.3% on the HELOC

00:31:08

Suze: could be tax deductible number one. And the reason that I say it could be tax deductible is that now you're only allowed to take interest off your taxes up to the maximum of $750,000 of your mortgage and, or a HELOC in there. So, if they totally, with the HELOC,

00:31:32

Suze: have a mortgage that's $750,000 or less, that 8.3% would be tax deductible if and only if KT, that $45,000 that they took out as a HELOC was used to repair their home, acquire another home or something to do with the real estate. So the 8.3%

00:31:54

Suze: might be really a whole lot less than that. Just know you can have a million dollar mortgage, a $2 million mortgage, whatever it may be. But up to $750,000 of any mortgage that you have including a HELOC

00:32:13

Suze: is tax deductible. Now, let's move on to taking money from a Roth 401k. There are truthfully many ways that you can do it. It's a Roth 401k so you can withdraw your money in many cases from it, tax free if you meet certain qualifications. Like, has it been in there for five years? Are you 59.5 years of age and older, whatever it may be?

00:32:42

Suze: However, in your particular case given what you have going the best way for you to take money out of your Roth 401k is through a loan because it's a 401k. When you take out a loan first, you have to know this rule, write it down everybody

00:33:05

Suze: the maximum you can take out from any 401k as a loan is $50,000 or 50% of the value of your 401k, whichever one is less. Also, when you just have a year and a half left to pay on a loan, you're far better off to see what happens because it's possible the markets could skyrocket

00:33:31

Suze: and you can make far more money in a Roth 401k. Don't do it, don't do it, don't do it. All right take us out girlfriend.

00:33:43

KT: So today on Amy's birthday, wherever we go, we will create a more joyful, peaceful and loving world.

00:33:54

Suze: She has the sweetest look on her face right now as she's saying that as if she really, really means it, believes it.

00:34:01

KT: I don't mean it. I believe it with...

00:34:03

Suze: all your heart. All right. And if you say that every day, you believe it every day and you say it with all your heart, we promise you you will be unstoppable.

00:34:22

Music: Music (out).


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