401k, Emergency Fund, Investing, Roth IRA, Saving, Stock Market
February 18, 2021
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On this podcast of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners Victoria, Larry, Jessica, Debbie, and Rodney selected and read by KT.
February 18, 2021. Good morning, my dear KT. Hi, Suze. How are you today? Pretty good. You look happy. I'm very happy. Why is that? Why not? I'm always, I'm always happy. I'm happy because I'm alive and I'm in love and I have great, I have a theme for today's podcast. Have you all noticed that she has a theme for every podcast now? How do you feel when you go through all these questions? That's why I decided I'm going to do themes because it's easy for me to kind of keep the conversation in one space. And for those people that really want to learn about that topic than when we put them in our archives, it's easy to find it and learn about the topic. However, I'm opening this with some with not even a question. It's a statement that doesn't need an answer. But it's something that I want to read to you because I'm very proud. I'm very proud of this particular person, person and letter that I received, but I don't want to identify her because I'm not sure if that's necessary. So Good morning, Suze and KT. I first heard of Suze Orman three years ago when my wise mother gave me one of her books to read. I thought I was pretty smart when it came to my finances, but realized very quickly how much I didn't know. I then read some of her other books and started listening to the podcast, and that literally changed my life. Suze, I was married to a man who abused me in every possible way verbally, physically and financially. I was not happy and tried to leave many times, but always came back, afraid I was not going to make it on my own. After learning more about finances and hearing some inspirational stories on your podcast, I left him for good and filed for divorce. I started saving every penny living in my parent's rental, furnished at Goodwill. I finally got divorced last March and continued saving and paying off my debt. You inspired me, Suze. You gave me strength, hope and the will to fight for my own happiness. I just want to say then this goes on to express everything that she's done in an actually short period of time, and she's 52 years old. She's doing great, everybody. That's what is really inspiring about the rest of this, which I'm not going to necessarily share because it's just a big list of everything great that she's doing financially. But I wanted Suze to know how she inspires people. Wanna hear what's so strange about you choosing that? Just yesterday I was thinking to myself, you know what topic we haven't touched on lately, the topic of financial abuse? And it was really important for me that this podcast wasn't just a podcast about answering people's questions about money, giving them financial hope. It's also was about bringing it to light that so many people are in financially abusive relationships and whatever you're in a financially abusive relationship, it always leads to physically, emotionally, psychologically, verbally abuse. Well, what's interesting, Suze is that I think you're the one that actually identified the entire category called Financial abuse. It exists between men and women. Not just women will have to do it on that. All right. Okay, so I just wanted to start this theme, and the theme isn't about abuse. The theme is about my favorite topic 401k baby. Your favorite topic, baby, Is Roth IRA there? All right, All right. So Hello, Suzy. I hope your new Year is going well so far. See, she still calls it a new year. And now we're almost in March. So, my question is regarding best option for receiving pensions. My husband has a 401k with his employer through Fidelity and also has a company pension. I've heard of people rolling company pensions into 401k is instead of receiving the monthly benefit. Is this a better option? If so, does a roll-over get taxed? So, it's hard for me really, my dear Victoria, because that is her name. Is that not right? I'm seeing this. KT just handed me the email. Victoria, this is a hard one. It's a hard one because I really don't know enough about you and your situation to answer it. However, I just want to give you a rule of thumb when you do a roll over, which means you take money from your soon to be ex employer and you roll it over into an account at a brokerage firm, or a discount brokerage firm and then you invest it. You are not taxed on that money, especially if you do what's called a custodian-to-custodian transfer. So, if you're going to go that way, open up the account at Fidelity or wherever you're going to open it up, have them contact your soon to be ex-employer and have your ex-employer send the check directly to Fidelity. Otherwise, they are going to withhold 20% if they send the check to you and it becomes an entire mess because that 20% will also be taxable because it didn't get into the roll over. With that said, it does depend on what you going to do with the money within the 401k, sometimes people. And if you're married, you always should get 100% joint and Survivor benefit if you take a pension, which means if the person getting the pension dies, the surviving spouse gets 100% of what that person was getting, and the only reason you would not do that is if they were going to be terminally ill or they are and you knew that they were going to die very shortly. So, if you do take a pension, make sure you do 100% Joint and Survivor pension. And a lot of people feel very secure in taking a pension. Verses rolling it over to a 401k or what's really known as an IRA rollover and really not knowing how to invest the money. So, I am not against taking pensions on any level. If it makes financial sense. Alright, that's good. I didn't know that. I didn't know that. You know what's funny everybody? She would have known it if she had read any of my books. I've read your books. You have not. Or you would not have said that I go into great detail. I can't remember everything. Suze, you have 10 bestsellers, 10 New York Times number ones consecutive. Are you crazy? 10, And they're fat, like us. Alright go on. Hi, Suze, KT. I only recently discovered the podcast, and I've spent the last month listening to every episode, starting from the beginning up to the one released on Valentine's Day. I have also started the personal finance course, So the question she has for us has to do with Roths. My employer offers a Roth 401k and fully matches up to 3%. They match half for an additional 2%. So, if I contribute 6% they'll match five I have only been contributing 2%. I know it's a big mistake on my part. I do not have a Roth IRA but would like to start one. However, I do not earn enough money to contribute the full 6000 to the Roth IRA and contribute 6% to my Roth 401k, which would be better. Absolutely, what's her name? I'm not identifying it because she doesn't want to be known. Miss Unknown. She's 34. Well, that's good. At least we know, but she's got some time. Here’s thing I would absolutely, if all you can invest is five or 6% into a Roth 401 K that matches your contribution, I don't care whether it's a little bit or a lot doesn't matter. You have to go with the Roth 401k. Also, you shouldn't be afraid to try to put a little money in a Roth IRA? Because any money you originally put in, you could take out without any taxes or penalties, regardless of your age or how long it's been in there. So, if you start to put money in a Roth IRA. And you just leave it in the money market account within a Roth IRA. If you needed that money in case of an emergency, you could just take it out, what you originally put in. So, I bet you could find some money where you could do that. Suze, what happens if you don't have the full 6000 does that? You don't have to. You don't have to. You could put in $200. $400. You don't have to put in 6000. The only thing is, you can't put in more than 6000 if, in fact you are under 50. If you are 50 or older, you can't put in more than 7000. Yeah, she's 34. All right, so there you go. Okay. So, this is from a man, a smart man. Suze, I have a broker rollover IRA account and an individual broker account. I hit it big in the markets. I loved that and have profited over a million dollars. I would like to buy a new home some day and was wondering how to withdraw from the IRA account or both accounts with less taxes possible, depending on your advice. In the IRA account, I have made over $700,000 and almost 300,000 on the individual account. I'm 65 years old. I'm semi-retired. I make about $1000 a month. My wife works full time and makes about $60,000 a year. I thought. I find it funny, Suze, that everyone wants you to tell them how to pay less tax. Well, I'll tell you what. And his name is Larry. Larry, Here's the thing. Have I not said over and over and over again to when you're investing? If you had a Roth 401k and then you retired and you did an IRA rollover with it, it would have gone into a Roth IRA. And then you would be in the situation where you could take out all $1 million right now from that Roth IRA rollover and not pay a penny of tax on it. But that isn't what you did. And this. I just have to use this one. KT, I love that you picked this because this one is the perfect example of why I have been saying Roth IRA, Roth 401k, Roth TSP, Roth 403 b forever and a day because it's possible you could be just like Larry, where you hit it really big. And now you have $1 million in an account that you have never paid taxes on. Because, remember, Larry, it's not the $700,000 that you made. It's the other 300,000 that's in there because you have a million dollars in that account. You're going pay taxes on all of it when you go to take it out. And if you want to take it out to buy a home in one lump sum, you're going to owe taxes on that entire amount of money. There is no way around that. The best way around. That obviously, is to simply wait if you can, until your spouse your wife isn't making $60,000 a year. You're making 12,000. Maybe you won't be then in a little bit. And your income comes from your withdrawing little by little, maybe 30, 40, 50,000 year from there, so you don't lose a lot to taxes, but there's no way around paying taxes on that money. Now, the other thing, Larry, is you say that you have almost $300,000 on the individual account that you have, So I'm assuming that that means you have $300,000 in just your name. As long as you've held whatever you've made in that account, those stocks for at least one year or longer, you're simply going pay capital gains tax on that money. Not a big deal. But you also should remember, since it's in your individual name that if or when you die, if you have not touched it and now you're leaving it to your wife. She's going to get a step up in cost bases on that money. So, if she then inherits that from you and turns around and immediately sells it, she's not going owe a penny of income tax on it. But there's really no other way around that. And death is in a great alternative, Larry. So, pay the taxes, and that's life. All right. Okay. Next question is another, another fan that's come into some cash. Suze, this is from Jessica. Hello, I will soon come into some cash about $75,000. I currently owe 68,000 on my home and 9000 on my vehicle. No other major debt. I have about 28,000 in savings. I have about a 250,000 in my retirement account. My question is, should I pay off my home or car or invest in an account which can potentially make me more money? Then she says I have great credit, little debt. And then this is the part that made me smile. I'd like to remodel my kitchen. Any ideas would be great. And but it doesn't tell us how old she is, which would help. But I know what I would do. Should we all find out what KT would do? Yeah. You want me to tell you I do I'd pay off that home, you know why? Why? You said when someone pays off their home we don't know if she's going live in it forever, though, because she's she didn't tell us her age. It makes you feel so great, right? It should have been our quizzie because nothing would have given me more pleasure to go, you are so wrong. It's not even funny. I'm not going to quizzes anymore. So, what I would tell you, my dear Jessica is the key to this question. Jessica, is that you say you have about $28,000 in savings and that you owe $68,000 on your home and $9000 on your vehicle? The problem is, I don't think $28,000 is one year of living expenses. Remember, new rule, according to Suze O, which is me, is that I want you to have a least 12 months of an emergency fun so I don't have a problem on any level if you take $9000 and pay off your car, because I'm sure that your car may be at a higher interest rate than your mortgage and a car loan is not tax deductible. You also say that you have no other major debts. You said major, does that mean you have some minor debts like credit cards and things like that? Right? Oh, and if we read a little bit lower here, KT, it says I have great credit and little debt, but little debt is not no debt. Therefore, I want you to take part of the $75,000 and I want you to get out of debt, totally. You also say that you would like to remodel your kitchen. If you're going remodel your kitchen, you have to do it for cash. You are not going to be able to get into more debt simply to remodel a kitchen. So therefore, if you want to do that after you have at least 12 months of an emergency fund, that is fine with me, $68,000 that you owe on your home is such a small amount of money. So, I don't have a problem with that. But I would not be using that money currently to pay off the mortgage on your home because you're just going to get into debt because you don't have enough money to do the things that you need right now. Suze, tell Jessica what it means to have 12 months of an emergency fund. I think we talk about the emergency fund, but some people think, Oh, I only need $1000 a month or a few $100 a month. You want her to have 12 months of what it cost her to live currently? Yeah, I want, you know, all. And this isn't just Jessica. This is everybody. Can you just go through your monthly bills? What are your must-pays: your electricity? Possibly your cellphone? Possibly you know, a car payment, a mortgage payment, Health insurance, life insurance, food, medical, whatever it may be. Bills that you do not have a choice that you have got to pay, no matter what. You need 12 months of those payments stashed somewhere. Now, obviously, and you know that I'm a tremendous advocate of this. The best place for you to keep that really would be into the Alliance Credit Union Ultimate Opportunity Savings account. Listen, everybody, we have about one month left and that account where if you put in $100 a month every month for 12 consecutive months and they give you 100 bucks is going to go away. Why is it going away? Because it's such a good deal. It's costing them a bundle for you to save your being paid to save. So, can you at least look into that again? Go to myalliant.com. That's a 16.7% return on your money guaranteed to you. Are you out of your minds, people, if you don't take advantage of it, whether you're looking at me no, that's a good reminder. That's a perfect way to actually establish an emergency fund. And some because they also are paying 0.55% interest. No, it's a great I wish it wasn't going away, But the deal was till March and the march. Okay, so this is from Debbie. Debbie is from Texas, and I hope you're not freezing, Debbie. So, I picked your questions. I know everyone in Texas. All of our friends were really suffering right now, so we're praying for all of you, so Hi, Suze. I don't have a whole lot of money to invest only $500. But I need your advice. I'm at a stable job. I work for a grocery broker, and I've been at my job for six years. I'm taking Social Security at 66 years and eight months where I should receive $1500 a month. I don't have much of a savings, only $2000. So, Suze, what is a safe investment for me? Debbie, can you just make sure that your employer, your grocery broker right that you've worked for six years doesn't offer a 401k or Roth 401k or something like that? I don't want to sound redundant, but given the fact that you only have $2000 and listen, I just want to say something to you, Debbie, you have more than most. Do you know that over 60 or 70% of the people in the United States don't even have any more $400 to their name and look at you? You have $2000 right now that's five times more. Then what the majority of the people in the United States of America has. So don't look at it like oh, my god, what am I going to do. Just do it little by little so I could tell you many things that you, you know, could put this money into to invest it in. But the best investment is in yourself and having more cash available in case you need it. So, like I said in the answer to my last question, take advantage of the alliance savings account because again, $100 a month, which you can afford, right, obviously will yield you a $100 at the end of those 12 months tremendously plus interest. So, start there until you gather your 12-month emergency fund. All right, Good advice. You said these topics were on 401ks, I finished that. Now we're onto Bitcoin. I can't, can't let the day go away without a Bitcoin. So Good morning, Suze and KT. I love listening to your podcast. I listen to them all. I try my best to follow all of your advice. But my question is, what's the difference? I love this. What's the difference between Bitcoin and Bitcoin Cash? I don't even know who owns Bitcoin. I'm trying to figure that out. I've been buying small bits of each $40 here. $50 there, $20 here, it adds up. This is from Rodney. Rodney, you like Bitcoin. Oh KT, why do you want you pick such complicated ones? Because people are asking me all the time about Bitcoin. Well, that's because a while ago I said start buying it, start buying it. And if you had listened to me it's gone up considerably. It’s dangerous. It's not dangerous. It's just a long-term investment. I do think you're going to see Bitcoin continue to go up here. But then I do think relatively shortly you're going to see it retreat. Alright, I know you're looking at me going. Did we sell our Bitcoin? Are you looking at me? Do I have Bitcoin? No, you don't have a Bitcoin because you would be like sell sell. But So, here's the thing everybody, Bitcoin I would like you to look a Bitcoin as an investment, not at something that you buy so that you could buy you know, a Tesla so that you can purchase things with it. If you're buying Bitcoin, then you need to buy it with small amounts of money here. Because we are not far, if you ask me from the top until it retreats and then goes back up again sometime. That, you know, is something that 10 years from now, five years from now it is like a true investment, like a stock, like a bond. It's something that you like Gold, Bitcoin very well could replace gold, but that's an investment. You wouldn't take a bar of gold or a gold coin into a store to pay for something. What you could do, however, and this goes back to Rodney's question is that Bitcoin cash is what you would buy if you wanted to use it as a currency. Because when you do a transaction, you put something on your visa, Carter, your MasterCard or Discover Card, American Express whatever it is, that's a transaction. And all these things have to happen in order for that transaction to go through. If you had Bitcoin and you did that, the transaction would be so slow because of the process of Bitcoin that it wouldn't work. So many people get Bitcoin cash because they're able to do the transactions faster with Bitcoin cash, then with Bitcoin. But for me, if I were doing it as an investment, I would only be buying Bitcoin because if you look at how Bitcoin actually increases versus Bitcoin cash, I think you'd find that you would make a bigger return on Bitcoin. So, buy Bitcoin if you don't need it right away, buy Bitcoin cash if you use it as an instrument to buy and sell. Yes, but that's not why I would be in Bitcoin on any level. I wouldn't be doing it would be doing it. So, in the future, it could be a serious investment. But remember, what goes up goes down, goes up, goes down. So, you really this is money that you could only afford to lose that you would be doing this with? Yeah, Okay. Time for my quizzie. I forgot about your quizzie. It's a big one, right? So, here's how these quizzes really work. KT picks them out. Wait, I I pick out a quizzie that I know she's going ask me, but I always think I know the answer. And when I give it to her I ask Suze, I'm going to answer like this, right? And she doesn't ever tell me. She looks at me as though I think I made the right decision. So, wait she's going read this? I'm going to tell you all what I'm going to do. And now I can't wait to find out if I'm right or wrong. All right. So, did you choose this one, this one? Because I think II know this answer great. So now she's choosing ones that she can get the answer to. The reason that I liked that she chose this one is that I want them to start getting a little bit more complicated. So, you could really think an imagine yourself as the person who would be answering this question for this person who asked the question. So, this one happens to be from Julia, and she says, Hi, Suze. I am 30 with a relatively stable state job making $57,000 a year. I currently have $9700 in a Fidelity Roth, but wondering if I could be getting better returns. It is in a robot account, and I can't make any changes myself. It is currently 50% in the Standard and Poor's 500, 25% in international indexe,s and 5% each in small and mid-caps. Don't you want to tell everyone with a robot account means it's just it's already. A robot on the computer is essentially investing it for her, and she has 15% in bonds. Since I opened it in 2018, it has made 11.26%. Is that good? What do you think? All right, I think that's pretty good return .Right, however, Julia is not satisfied with that. Everybody. So, what is Julia doing? She is interviewing a financial advisor who recommends moving money over to Schwab using exchange traded funds with either the Dow or Standard and poor, or with the QQQs, which are technology innovation. All right, she said that at my age, I should not be in bond funds as it is dragging down growth. So, here's her question. This financial advisor is not charging any fees as she was referred by a current client, but I am trying to do my due diligence. She is helpful, explains everything and is not pressuring, so I have a good feeling. But does this make sense to you, anything to watch out for? So recap, Julia is 30 is has $9700 in a Fidelity Roth IRA. That has been averaging for her about 11.26% since 2018. And she's interviewing a financial advisor that she was referred to from a friend and because she was referred by a friend, the financial advisor isn't charging her any money and is recommending to move the money to Schwab using ETFs and things like that. And does that make sense? Does it, KT? Personally, I would I would stay where I am with my robot at Fidelity. It's a nice return set it and forget it. You're 30 years old. You're 30 years old. By the time if you keep that money where it is, I think she's going do extremely well. And I don't believe any financial adviser doesn't make a fee. Thank you ever, so Julia here, which, by the way, there's nothing wrong with that. But when they tell you they're not making any money on you, that's my big red flag right there. So, are you right or wrong? I'm right. Am I right. You think you're right? Yeah. You do positive, that's what That's my advice, Julia, if you listen to Suze Orman if you want, that's KT's take on it. So, Julia, KT is right. But I have a little bit different advice for you. If you're not happy with the robotic account that you happen to be in, then keep it. Can I? Can I tell her what to Do? You could buy your own little slices at Schwab. Right? Suze? She's infidelity. No, but she's infidelity. But if she wants, fidelity has slices to all right, she could buy her own little slices. There you go, do it yourself girlfriend. So, Julia, if I were you, you are never powerful in life until you're powerful over your own money, how you think about it, how you feel about it and how you invest it. At the age of 30 with $9700 you do not need a financial advisor what you need. Since you already put in the energy, you said to research the QQQs and other things. You need to start doing a little bit more research and decide how you want to invest this money on your own. The only reason that you have 15% in bonds is that obviously bonds are pushing you in case these markets happen to go down. So, if you're not happy with your robotic adviser, leave your money at Fidelity because they are fabulous there. Actually, I have to tell you at this point in time, in my opinion, better than Schwab and better than TD Ameritrade because of how they do work with their slices and things like that. So, I think Fidelity is just fabulous would probably be my number one pick. I have to tell you the truth. Um and I do not get paid to say that I'm sure Schwab and TD Ameritrade, or like what, Suze just see. But it's true. Everybody we like the three of them. Yes, but out of all of them, really, KT, fidelity is better at the things that you could buy. But I would just then take the money over and invested How you want Thio. I would be dollar cost averaging if you take it out of the investments that you're in dollar cost average back into this market. Because I've said this before and I still believe it that right around April 5th, I think we're going to see these markets start to turn and go the other way. Maybe on Sunday I will explain why. I think that has a lot to do with the stimulus checks and other things. But I just I think that so there's nothing wrong with taking money off of the table, especially at this point. If you want to manage it yourself, I would not be turning it over to somebody else who isn't going to charge you. It just doesn't work that way. I knew I was right. What a great way to end this day. All right, KT, you're not ending this day. This day is just started. No, but I mean the podcast like the podcast. Anything else? No. You do the closer you do that because you don't do close. I don't close. I don't work Sunday. You don't work Sundays. Alright, everybody. I always want you to remember when it comes to your money, there's only one thing that matters. And it is this people first than money than things from our hearts to yours. You stay safe. See ya Sunday bye everybody.
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