401k, Emergency Fund, Retirement, Roth IRA, Student Loans
December 10, 2020
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On this podcast of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners selected and read by KT.
December 10th, 2020 Suze O here in Welcome to the Women and Money Podcast as well as the men smart enough to listen. This is ask Suze and KT anything. The new official name of it is the official name. Everybody, there she is again. Here we get a little miss laughter over there. I call him my little Bunny. She's like this Energizer bunny. Five o'clock in the morning comes and she is up and out and running all over the house. And I'm like, Really KT? It's pitch black outside. She's got a water. Her little plan. She's gotta make coffee. She's just an bunny. Bunny. Bunny. Bunny, bunny. Anyway, I don't know why I said that, but guess what? KT? What? Suze? News for you. I haven't told you yet. Oh, I know. Remember a few weeks ago I put out and I said, I'm looking for a new sponsor for this program for next year that is willing to help people that if they put in $100 let's say they did it every month for 12 months that they would get 100 bucks, which is like a 14.5% return on their money. I got one. I got one. I got… Wait a minute. What? We shouldn't announce this year. No, but I want all of you to be excited because it looks like somebody stepped forward. And I am so ecstatic about it. I cannot even tell you. You're gonna have to wait until January to find out. Okay, everybody, we have a great quiz today. So I'm gonna ask Suze the question at the end off the podcast, So don't go away and listen. I'm going to answer it at the end of the podcast because you want to know why we're doing it that way now? Robert, who is the editor of this podcast and we love So we love you. We love you. Robert Wright said, Suze, it doesn't make sense for you to ask a question at the beginning and have people wait to the very end when they can't remember, probably. what the question is. So do it all at once. All right, so we're trying it this way. So listen to the very end of this podcast to here, KT's quiz question. And to hear my answer. Alright. KT. Suze, I'm happy to hear you're doing well in your recovery. Your strength is so motivating. I know everybody. She's doing great, but that's surgery really took us for a loop. Okay, so here we are. I'm a loyal listener and watched you on TV for years. I'm 30 for my husband's 41. I make $92,000 a year with a combined income of $141,000. My question is, do I need a minimum amount of money to open a Roth IRA. Prior to the pandemic, we spoke to my husband's financial advisor about his retirement account. They told me I needed $5000 to start an account. Suze is this true. I could pull $5000 out of my emergency fund, but that would make me short of the eight month goal. This has been on my mind. Please help me. What's her name? Suze this is a man smart enough to Listen, it's from a man and his spouse says financial advisor told him that. Oh man, smart enough to listen. You listen to me and don't listen to your spouse's financial advisor. In fact, your spouse's financial advisor should probably not be your spouse's financial advisor much longer. Since that information is so wrong, you can open up a Roth IRA for any amount of money you want. Especially now. The discount brokerage firms don't have minimums. They don't have fees. Are you kidding me? So if you want to put $100 in let's say a Roth IRA at Schwab or Fidelity or whatever it may be, you could do so and build from there. $5000 minimum when the maximum is $6000 a year at your age. Are you kidding me? Don't listen to this financial advisor. Go ahead and open up your own Roth IRA account at a discount brokerage firm. Oh, this one's good, Suze ready? Does that mean the last one was No, no, no. But this one, This is an interesting one because people often ask me the same thing I read that you and KT have no shared bank accounts. Really? How do you advise couples to pay common household expenses without a shared account, especially if one makes more than the other? Not even one joint account? We don't we don't never have. We don't. But it would be OK in this particular situation if you did have one shared account. But that shared account would be only for household expenses, period. And the way that you would divide it is not equal amounts of money, but it would be equal percentages of money. Let me just give you a very quick example. You bring home $7000 a month. Your spouse brings home $3000 a month, so you are bringing home $10,000 a month. Your joint expenses. Let's just say our $3000 a month divide the 10,000 into the 3000, and that gives you 30%. That means 30% of your take home or $2100 a month goes into a joint account for household expenses, 30% off the 3000 take home or $900 goes into the joint account for household expenses, so $2100, 900 dollars is $3000 and that's how you do it. Equal percentages. If you were to divide that $3000 by 50 50 it would be $1500 each. Correct. But $1500 for the person who's bringing home $3000 is 50% of their take home, $1500 for you that are bringing home $7000 a month is only like 25% of your take home. That is not fair or equal so equal percentages, not equal amounts of money. Why don't we do that, KT. We do. No, we don't. You're not paying attention to me. No, we do. We have a very, very easy system. You pay for the big ticket items. I pay for the little ticket items, and it just seems to work way. Never, ever argue people. I just want them to know Suze and I never argue about money, and the one thing we have disagreements on is something you might find interesting. It's tipping. The reason is Suze was a waitress. For those of you that may not know and because of her background, she and is an extraordinarily generous tipper. I mean, beyond the beyond generous. And I don't particularly believe in that. I think you should be reasonable and give a fair tip. Not Suze Orman. And that's the only time that we squabble a little bit about money and percentages. All right, next question. I still tip no matter what she says, she still I say. Okay, give them $20 and she'll still slip like a $50 bill behind the 20. She does things like that, and she loves to tip Big. Loves it. Okay, ready. Next question. Do you think it's possible to be financially abused if you earn more money? Nobody's forbidding me from working or taking my paycheck, but I am responsible for everything important, our child expenses, supporting family members, securing retirement, insurance, a state planning and all they do is spend their own money on fun and pressure me to spend on them. Now I'm finally able to say no, and it's causing resentment. So the question is, Is that financial abuse in the context of a marriage or is it something else? Have I just been stupid? That made me feel bad. Maria. Oh, Maria, Have you just been stupid. No. Have you just been… don't take this the wrong way. Have you just been a typical woman? Yes. And I can say that because I'm a woman and a woman's nature is to nurture. A Woman's nature is to take care of her spouse, her Children, her parents, her, her pets, her plants, her employers, her employees, everybody before she takes care of herself. So you just fell into that role. But now you have fallen out of that role. And now you have seen the truth about the people that you've been giving to. They don't obviously feel about you in the same way. I'm so sorry to say, because they're mad at you because you're not giving to them. Somebody who really loved you and honored you would say I get it. Thank you for everything you already gave me. They would not say I don't like you because you're not giving me any more. So they're showing you their true selves and you need to see who they really are. Keep your money for yourself. Say for yourself. Be strong, smart and secure. The whole theme of the women and money podcast is to do exactly that. And no you're not stupid, but you sure are smart as of now. Yeah, Okay, that happens. And you know, Maria, you're not alone out there so stick with a girlfriend. Okay? Ready. Next question, Suze. Your podcast about upcoming changes to the law about IRA's Got me thinking about my own IRA that was left to me by my father. It's a stretch IRA. I have to take distributions from this because he was over 70.5. I was told there is no way around this. I also thought I could hold this indefinitely the way it is but after hearing you talk about the new law, I'm not so sure. Does this law apply to me? Wait, Susie can. What's the stretch, IRA? I don't know. What is a stretch IRA I never heard a stretch. All right, But the first thing that everybody has to understand is this is really no longer a new law. This law was actually brought into effect in December of 2019, which is over now, a year ago. And this is when the laws changed that said, if you inherit an IRA or retirement account. You no longer can do a stretch IRA. I'll say, Tell you what that is in a second, you have to. Now, if you're anything other than the spouse, withdraw all the money that is in that IRA or retirement account within a maximum of a 10 year period of time. You can wait till the 10th year if you want and then withdraw it all. But within 10 years it has to be wiped clean. A stretch IRA simply is based on your life expectancy. You could stretch those withdrawals over your entire life, 30 years, 40 years so your tax ramifications would be really small. The government said No, no more. It's now a maximum of 10 years. So, yes, if you've recently inherited an IRA and you are not the spouse because the spouse can inherit it as if it is his or her own, you have got to withdraw in 10 years. Okay, another 401 K question. Suze, Here's the situation. This summer, we purchased our first home in a highly competitive real estate market outside of Seattle. In order to avoid the private mortgage insurance, we decided to take out a $50,000 loan from my husband's 401 K to put it towards the down payment. My husband's employer still matches funds up to 50% were still contributing 12% into a Roth 401 k in addition to the bi monthly 401 k loan repayment. What is your advice regarding the repayment of this loan? Should we make it a priority to pay it off faster or just live with it since we're still getting the employer match? You know, if this had been written to me maybe a year or two ago, I would probably say to you, I would make a priority for you to pay it off. I also probably would have said to you, Do not take a loan out of your 401 K plan in order to avoid PMI on a mortgage because the risk is too great. Why is the risk to great? Because if you have lost your jobs, if all of a sudden you got sick, you couldn't work anymore that loan, in most cases is due and payable in full. If you can't pay it in full, then you are taxed on it as ordinary income and a 10% penalty if you are not 55 years of age or older in the year that you lost your job, so therefore, I would be saying to you never do that. But given that I'm now answering this question in December 2020 I would not be repaying it faster if I were you. I would make sure that I had the money in case something happened that I could repay it back. But I rather you not repay it because even though the market's are going up right now, I'm not exactly sure what's gonna happen after April, so I wouldn't go ahead and repay it at this time. I think you're better off really, because when you put money back into the 401 K, it goes back into the market. I think you're better off just paying it back over time. This is a good question, Suze. They're all good. But there's times you yeah, this question this one, I think, is this is great, but I actually didn't know what the answer was, and I didn't know that this is what's happened you don't know the answer to a lot of these questions. That's not true everything but sometimes. Okay. At the end of last year, I received a letter from my private student loan company saying they had forgiven my debt a whopping $44,000. And then she says, I was so ecstatic I jumped for joy. After the first letter came telling me the student loans were forgiven. Another letter came stating that they would give me a 10/99 for the debt that was forgiven. And, as promised, at the beginning of the year, I received 10/99 for each loan, that pushed my income well into the six figures. I went to do my taxes and was told that I owe the IRS $14,000. I don't have that kind of money Suze, what should I do? And now here's a question. Good news, Bad news. Good news. Bad news. Here is the answer to that question. There's not a lot you can do, but here's truthfully what you need to know when you have any loan, not just your student loan, but any loan discharged. It is a taxable event for the amount of money that was discharged. So the only way that you get out of going taxes on that because any debt that is relieved is a taxable event. The only way that you can get out of that is if you are technically insolvent and you're considered to be insolvent if your total debt exceeds your total assets. So if this $44,000 debt that was forgiven actually exceeds all of her assets, she doesn't owe income tax on it. So she should be very careful and see if that's true. Now, to claim this exclusion from income, you have to file IRS form 9-82. Everybody just know that. So if she doesn't qualify for insolvency, then what she should do is request a payment plan for up to six years from the IRS. And depending on her tax bracket, then her monthly payments under that plan will probably be just a third off what she was paying on her student loan. So it might be, a whole lot better deal for her to do that. But those are her two choices. Okay, good. So she still made out good in the end. Maybe we'll see. Hopefully. Okay, here's a good one. I know the answer to this question, but I thought I would read it for the sake of everybody. KTs asked and answered Segment Go on. That's not true. Alright? My wife and I have the Suze Orman Revokable trust, that Suze's must have documents everybody. And the question is, do we have to put IRA into the revokable trust? We don't know what to do. I know the answer. You picked this question because you wanted to. I know this answer. I wanted to look at me and know it clearly. Here we go. Okay. Okay, everyone, an individual retirement account and IRA, any retirement account cannot be held in a trust. It's held in the name of the individual. End of story. Done. There you go. Suze. Got it. Finally, here's another 401 k. Suze, I have one question. My husband and I make 230,000 year. Am I able to contribute to my work place Roth 401K since we make so much money, she's probably thinking that just because it's a Roth retirement account that there are income limitations on it because there are income limitations on an individual an IRA a Roth IRA. And if you are married, finally jointly. If you make over $206,000 of modified adjusted gross income, you don't qualify at all for a Roth IRA. So she probably thinks that she doesn't qualify for a Roth 401 K because she makes 235 with her spouse. Wrong. You can qualify for a Roth 4R3B, a Roth TSP. Whatever it may be with an employer, regardless of your amount of income. So there are no income limitations when it comes to an employer sponsored Roth retirement account. There you go. Next question. Okay. So, Suze, this is from Miss Tanya. I was gonna say Tanya, but she signed it. Miss Tanya, I have a car loan monthly payment in the amount of $480 a month at a sixish percentage for 84 months, she wrote sixish. I like that. I want to refinance to lower the monthly payment. How do I go about this, Suze, and will it affect my credit score, Miss Tanya, there's too little red flags here in your email. Number one. You want to refinance it to lower your payments, and will it affect your credit score? So obviously you don't have the money to make the current payments on it. It's at a sixish interest rate, and the only reason that your interest rate would be so high in these incredibly low interest rate environments is because your FICO score or your credit score is already low and you're concerned about it affecting it because it's low. The problem is, if you refinance it to, lower your payments. The only way to do so would be to extend your payment period to go from four years to seven years or even 10 years. And in the long run, even though your payments are lower, you paid farm or for that vehicle. So you know there is a rule of thumb when it comes to purchasing a car, and it's you are never to finance it for more than three years, because if you're financing it for more than three years and you have to do so, it says to me that you can't afford the car that you are purchasing. So even though I know you want to refinance it, to lower the payments. I'm asking you not to do so. Okay. This is our last question, Suze. So thank you for helping us in all of our money questions. I have $18,000 in a Roth IRA in Primerica. My agent invested it into a mutual fund. Class A. I would like to roll it over into my other Roth IRA account at TD Ameritrade. Is this a good idea? Here's the thing. Let's go to a very quick Suze school here and the Suze school we're going to is what is a mutual fund? That's a Class A. There are really three classes of mutual funds. So Class A is where the fee is charged or the load. It's called up front and it's usually 5%. So you invest $10,000 today, the markets do not move at all, and at the end of today, you want to sell that mutual fund. You're only going to get back $9500 so a class A fund usually has to go up 5% in value just for you to break even you would never, ever, ever by a class a fund. Now, before I tell you what a Class B is, let me tell you the third alternative, which is the only kind of mutual funds I like, which are known as no load mutual funds, which means you can buy or sell them without any commission whatsoever. So if you put $10,000 in today and the markets didn't move and you wanted to sell it at the end of the day, you would get your $10,000 back when those types of funds started to become really, really popular, the mutual fund company said. Oh, let's try to create a mutual fund that looks like a no load fund, but there's really a load in it and it's hidden, and that's known as a Class B fund where you put money in. And there's no commission for you to get into that fund as long as you leave your money in there for at least 5 to 7 years. Because if you take it out before that time, then you have to pay what's known as a surrender charge, and you don't wanna have to pay a surrender charge, and it's a long story. But you don't want a Class A or a Class B share. You don't want it. So at TD Ameritrade, you most certainly could purchase a no load mutual fund, vanguard. Whatever they may be. you could do it at Fidelity as well. So the answer to this question is, you've already paid the load on this mutual fund. You've already paid it. So is this fund performing better than the fund that you want to take your money and roll it into within TD Ameritrade? If it is, just leave it where it happens to be. If it's not, transfer it to your account at T. D. Ameritrade. You see, KT, once you've already paid a load on a class a fun. It might be a great fun and performing, and to get out of it may not really saving any money. What you're looking for within a mutual fund is these expense ratio. How much does it cost for you to stay in that fund every year? And hopefully it doesn't cost you more really than half a percent or three quarters percent at most. That's what you would also look at all right. Time for our quiz and everybody. This is a good one, because this is a This is from a man. I'm calling it my man quiz question. Ready? So, Suze, during the pandemic, I bought a stock at $50 a share. It went down to $20 a share, and I sold it. I sold it so that I could take a loss off my taxes. Two weeks later, I realized I should have held on to that. And I bought it back at $25 a share. So the question is, can I still take the loss off my taxes? My wife says no. I say yes. Who's right? Suze. You should have called it a He she question. Okay, this is a he she But it came from the husband. He she quiz. Who's right, KT? Well, I'm gonna be on the team of the girls. I go for the girls. All right? No, he is wrong. She is right. No, you cannot take it off your taxes. Why? There's something known as the 31 day wash rule, which means you cannot just sell a stock and then take it off your taxes as a loss. But by it back right away. So you're just establishing a loss. You have to wait at least 31 days to buy it back. And then you could have taken it off your taxes as a loss because he didn't do so. He bought it back in 14 days. And it's not just buying back the exact same stock. It's buying back a stock that's even similar to that. So the IRS is very strict on this. The fact that he bought it back before the 31 days his loss cannot be written off. So in the end there, KT, she was, right. Good, right. That ends our ask Suze and KT. Anything. How you doing today? I'm good. So what's for breakfast? have a fun surprise for breakfast. And if everyone goes to women and money up, I'm posting a photo of breakfast this morning. Are you going? I'm doing something fun for Suze and we're having breakfast in a new location on the island. So go look it after listening. So where you going to post this KT? On the on the women and money women and money. App. Alright, so for all of you, if you don't have the women and money app, just go to Apple APS or Google Place. Search Suze Orman and you can download it. Alright so until Sunday, everybody, you stay safe.
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