Interest Rates, Investing, Retirement, Roth, Roth IRA, Saving, Stock Market
May 20, 2021
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On this podcast of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners Karen, Deborah, Jackie, John, Bryson, Lisa, Jen, Deb, and Desiree selected and read by KT.
May 20, 2021. Guess who's back? KT! Did everyone miss me? Two Sundays in a row. You didn't get me But I had a great time with my sister. We're still having a great time. Today is Barbara's 60th birthday. Happy birthday, little sis. But also, my friend Grover, today is Grover's birthday, Grover shares. You want to know what's funny. Everybody, we look at our calendar and all of a sudden, KT says to me, Suze, we have more dates in our calendar designating people's birthdays than anything else in our calendar. I said that's what happens when you get old, you accumulate all these birthday friends. But we just want to wish my sister the best, best year ahead, best decade ahead. It's a good one. It's a good one. Welcome. So, I have to tell you people are loving the Suze schools without you. Just joking. You should see my face. I can't believe I'm heartbroken to hear that. That's not true. I was just better for you to all concentrate on Suze and Suze School without me because I know I add a lot of distraction. Yeah. Alright. Anyway, everybody wait, KT, this is Ask Suze and KT anything and this is essentially where you write in and if your question is chosen then we will answer it on the podcast in the best way to do that is simply by doing what, go to firstname.lastname@example.org or you can go to the Women and Money app. Which you can download at Apple apps or google play search for Suze Orman and send it in that way. Okay Travis ask away, wait, did you pick good ones? I have a real variety here. Some are sad, Suze. Did you cry? No, but they're very they kind of reinforce your, your constant reminder of why it's important to have these funds and everything in place and must have documents because I have two or three very sad, what ifs. And I think it's important that we share that as well. But I'm going to start with something a little festive. This is from Kristen and I just, I liked it because this is what she wrote. Aloha Ladies. I love when I get an island girl this is Kristen from Hawaii. Aloha, I accidentally contributed $6,000 to both a Roth IRA and traditional IRA in 2020 I recently discovered my mistake and now I'm trying to correct it. I've earned $5,000 on the $6,000 contribution to my Roth over the past year. What would be my best option to pay the least in penalties and taxes? Thank you from the Hawaiian, the beautiful Hawaiian island. We love Hawaii, don't we. We love it, the scent of the air when you land and what is that? Plumeria? I love that. Well okay so what should Kristen do? Kristen, listen If you put $6,000 into a Roth and now you've gained 5,000 on it. So now you have $11,000 there and you put $6,000 as well into a traditional IRA a but you did not say that you invested it or anything. So, I'm assuming that it's still $6,000. You're best off taking the $6,000 from the traditional IRA. Just that simple. However, everybody Kristin's story or question is something that you should all learn from. The maximum that you can put into an individual retirement account is 6,000 year if you're under 50, 7,000 a year if you are 50 or older. So, if you open up a Roth and the traditional, the most you can put in total is six or 7000 depending on age. So, you can't put in 6000 in one and $6000 in another. You cannot do that. So, a maximum in an individual retirement account, whether it's by itself a Roth or traditional or a combination of the two is 6,000 if you're under 50 and 7,000 if you're 50 or older. All right, Travis, I'm into calling you Travis today. That's okay, they used to they used to call me that in school. They would say, hey Travis, everyone called me Travis in school in college. Mhm. Okay, so this is from Nancy. She starts with Dear KT and Suze. So obviously Nancy, you were smart. I picked this out because you addressed me first. So here we go, Suze. I'm going to summarize Nancy’s story. So, Nancy's 53 to help out her daughter. She babysits the twins. Little twin boys a couple days a week. So, her daughter Kim can work. Wait, I just have to interrupt here. She did not pick this because you said KT first twins. Because you said you babysit the twins and KT is a twin. So, whenever she sees anything about twins is like I love that. I love that. Okay go on. So, wait, so Nancy. She went to the grocery store to get some groceries and she picked out a little lottery ticket and a shiny penny to scratch it off. And to her surprise, she went crazy thinking she won $300,000 in her mind. She's going through all these scenarios. So, wait, wait, wait. She scratches it off. She sees the number and she she's won $300,000. So, wait, Suze. This is a great story. First came to mind was you, so Nancy said all she did was think Suze, what should I do? Should I pay you know, should I use the money to get a college set up for the twins? Should I help my daughter pay off her home or buy a home for her? What should I do? She said that she went on and on and on with thinking and then she realized, right ready everyone. She did not win 300,000. She actually did the scratch incorrectly and didn't win anything. So, here's she's sitting here and she said okay, if I did with 300,000 Suze, what should I do? At least I had all these great ideas to help everybody, especially to buy a home from my daughter. So, she's asking you, does she say anywhere in the email? Wait wait, does she say anything in the email? How much money she has herself. She has a 12-month savings. She has an Alliant credit union account which is great. The ultimate savings account. She has no debt. She has about $30,000 of open credit cards with no balance and she has no assets. She has no assets and she has no retirement fund. What? So how old is she? 53. But wait, the question is if I did win that much money, what is the smartest thing to do with it? Well, I can tell you one thing Nancy. It wasn't doing anything that you were thinking, you should do with it. You need to get real here. And if you were thinking about me, so you think you've won $300,000 and now you're thinking about me, Suze Orman would never say to you, when you don't have any retirement account really, your 50 some odd years of age and you're getting obviously older to say yeah, take all this money that you just won and make sure that your grandkids are okay, that your daughter is okay, to do all of that. And then if there's anything left to spend it on yourself somehow, No. All of that money should have gone to you, in your head. Do you want to buy a home? Because I don't see in this email here that you mentioned that you own a home or you do anything like that. But I would be saving every single penny, every penny for myself and my future so that I wouldn't be a burden on my kids or grandkids. So, if you ever happen to win $300,000, you are not to spend it on anybody else, but you are to save it for yourself. It's so funny, isn't it, KT. I'm wondering also the advice maybe Suze's instead of buying these lottery tickets, start the Roth IRA. Now it's all right to buy a lottery. She bought one lottery ticket because there are people, you know how many people I know that have won the lottery and I'm like, you have to be kidding me. You won, Yeah, I won this, I won that. But want to know what else is really funny, KT, they all lost all of it. I think that, you know, they say that um people that win over $1 million dollars in the lottery usually lose it and some, right away because they're doing things like this. But everybody really, this is the Women and Money podcast, and the one thing that I would just like all of you to take away from this podcast is that you matter, when you hear me say people first then money then things. I mean you, are you taking care of yourself and as women. Everybody wants to take care of the grandkids. This one, that one, but they don't take care of themselves. That will be the biggest mistake you ever make. Travis, what's the next one? Okay. Next one is from Denise. Hi Suze. I love your podcast, books and everything you do. And now she's asking for you to recommend some great index funds or exchange traded funds for her to invest in at Charles Schwab. She said, I know you generally suggest VTI at Vanguard, but I currently have an IRA already at Schwab. So, I would love your suggestions. Denise VTI is the symbol for the Vanguard Total Stock Market Exchange traded fund. And even though it's a vanguard fund, you can buy it anywhere. You can absolutely buy it in your Schwab account. Schwab is an incredible company. So, you would never want to go anywhere else. But really just stay there. You don't have to go to Vanguard and open up an account at Vanguard to participate in vanguard funds. You can buy them or purchase them and really, it's not going to cost you anything because there's no commission directly via Schwab or any other discount brokerage firm. For those of you listening, you happen to have an account with. That's a cute little smile. No, I hope Denise takes that advice. Well, she was just confused. You know, sometimes you say by the vanguard, this the vanguard, that and that. You can go to Vanguard directly, KT and by their mutual fund or whatever it may be. But you don't have to go to them. You can buy it through any brokerage firm out there today. Good. All right, next one is from Tamara. Dear Suze. I have $330,000 in a government differed comp plan for a job that I left. KT, what's the deferred comp? I have no idea. It's money that that you can take later when you leave a job or when you retire. Right, deferred compensation, my dear, KT is very different than a defined benefit program which is a pension program or a defined contribution program, which is like a 401K. Deferred compensation is you are deferring your pay your compensation and therefore because you're deferring it, you do not have to pay taxes on it until you take it out. So, there are a lot of employers that allow you to not only contribute to a 401K, or 403b, or a TSP, but they also allow you to defer compensation. And if you remember there's some of our friends at QVC. That really didn't need any income. I don't know if you remember this, some of the hosts and they differed 100% of their compensation. Ask you can you defer 50%. Some people differ 100%. If they don't need their compensation for whatever reason maybe you know their husband or their wife is working and they don't need that money. They defer all of it so they don't have to pay any taxes on it whatsoever. And then when they're in a lower tax bracket supposedly, lower tax bracket. They take it out and they pay less taxes on it. So that's what you have to defer it for a certain period of time. What you usually defer it until it makes sense to leave, until you leave. You can take it in many cases anytime you want. But you do have to pay taxes on it. So okay go. I'm sorry. In any event, she's got $330,000. Now she is also starting a new job with another government agency. She was told that when she left the first agency the funds are available obviously without penalty. If there's no penalty only taxes to pay, since the funds are all pre-tax dollars, would you recommend Suze that she takes part of the 330 to pay off 25,000 and credit card debt, 10,000 in personal loans 30,000 to fix up an old home that she inherited that she could use for retirement. She's got about 15 years to go before she can retire at the age of 70. And the other option, the second part of the question is or Suze should I roll over all funds for my future and keep working until I get out of debt now. So that's what she's asking. So Tamara, I love that you have $330,000 there. And personally, I would love if you could transfer all of it and let it grow. However, $25,000 in credit card debt and $10,000 in a personal loan. I'm sure it makes you feel like you're trapped on some level. So, I personally would check in to see how much would $35,000 cost me in taxes if I took it out right now and rolled over the rest. And just for fun, I would see what would happen if I took out $65,000 which includes the $30,000 to fix up your home. And if it's not going to cost you that much, then you could do it all. But if it is going to cost you a lot in taxes, just get out of credit card debt and pay off the personal loan and then you'll deal with fixing up your old home that you inherited later on when you can. All right. Next one. This almost could be a quizzie but I'm making it. You know, I have your quizzie right here. Okay. All right. Hi Suze and KT, love listening to your show. This is from Holly by the way, I'll be 70 years old this year. I have 86,000 in a 401K with Fidelity From a company that I left in 2015. I can keep it there. But I want to know if I should move it into a Roth IRA and take the tax hit and pay off a $76,000 mortgage. I also have savings of $28,000 or should I put a chunk towards my principal and keep the rest invested. I only have Social Security benefits, no credit card debt or car payments. I know when I need, when I turned 72 I'll need to start withdrawing from my 401K or Roth. So that's from holly. So, want me to tell you what I would do. Yeah, I know that this is a little bit tricky because she's 70, she obviously, this is all she has in her retirement and she's asking should she take, I know what would you do? I'd pay off the home, you would take out 76,000 from 86,000 that she has in her 401K, and pay off her home mortgage. Wait the way Suze is looking at me, I obviously, that's the wrong answer. What kind of 401K does she have KT? Oh, she has to pay taxes on it? I never mind. Never mind. I'm wrong. Roll it over to a Roth, you're even wrong there. Okay, Suze, tell her what you think. Holly, don't listen to KT. I just have to tell you all a story when we used to go and I would be giving talks when we used to actually see people via versus zoom Okay. All of a sudden, I would be turning around and KT would be answering questions for people and I would look at them and I go, why are you asking her? And they'd say, well we face KT, she's KT. And I'm like, you must know. And I never knew it. Never knew anything. And I said, KT, you cannot answer people's questions financially when they ask you. But anyway, most of the time, I'd say you better wait and ask Suze, do you believe that everybody. All right, Holly, here's the problem, any money you take out of your 401K is absolutely going to be taxable to you as ordinary income. Also, if all you have right now is social security, you're not really paying taxes on that. Social security and your Medicare is less and your premiums are less. So, you're going to screw all of that up if you take out 86,000 in one lump sum. If you move it to a Roth, you're going to also take the tax hit on that. So, what I would be doing if I were you, I have to tell you if you want to, you might want to move little by little, see what $20,000 a year converted to a Roth would do to your taxes because even if you did $20/25,000, it might not cost you much in taxes and then in 2,3,4 years you would have it all in a Roth IRA and essentially you would have done it essentially tax free. So, but you need to check with a CPA to really see exactly what could you convert every year to a Roth, without you having to pay any taxes on that conversion. And as much as I would like you to use that money and pay off your mortgage that would leave you without any cash whatsoever. Then you've put yourself in a situation where you're you know you are cash poor, house rich but cash poor. So, I do not want you to pay off your mortgage in this situation because all you have Is that money that's in your 401K. And if something comes up and you need money that's not good. It's not good then you're going to want to do a reverse mortgage which you know I do not like. So just get yourself, somebody could help you figure it out that how much did you convert each year from your 401K to a Roth IRA. The next one is from Becky and Suze. This is where I said some of these made me a little sad because when I read these it's a short simple question. But I feel like Becky really needs your advice and not the advice she's getting. So, Becky's husband passed last year. His 401K is now in her name. She's hearing talk that her money will be worth nothing before the year is up. So, she said Suze how do I take that 401K money before I lose it all, they say I can't touch it without getting taxed very highly and send me into a higher tax bracket. Any suggestion. So, Becky. First of all, our condolences were so, so sorry, we're just so sorry what else can we say? But here's what you need to know. If I were you, I would be taking the money from the 401, and I would be doing an IRA rollover with it. Within the IRA rollover I would keep it safe and sound by either keeping it in money market accounts or putting in in treasuries or any investment that you feel you won't lose money in. So, I would probably not, on any level be taking it out because you will be taxed on it if you simply withdraw it, so do an IRA rollover. Keep the money safe and sound. And from there just go slowly because here's the truth of the matter, Becky. I usually tell people not to do anything for six months to one year or longer after they've suffered the loss of a loved one. Other than keeping their money safe and sound. So even if the markets weren't going to go down or who knows if they're really going to go down or not, I would be advising you to keep it safe and sound until you feel a little bit better. But the best place to do that would be in an IRA rollover. All right. There you go. Becky. Okay, Suze. Next question is from Penelope and I like this one. I'm giving everyone a real uplift after that one. So, hi KT and Suze, Suze and KT. I have $35,000 remaining on 120,000 mortgage. I was an early investor in Bitcoin and Lightcoin. I'm currently holding around 155,000 in both of those investments, with the cost basis of $3000. Do you think I should sell enough of this to pay off my home and cover long-term capital gains? Now, wait, I have to tell everybody. All right, Penelope is 35 years old. She's single. She's been maxing out her Roth for years, years, everyone. She's got over 100,000 in retirement investments and I'm telling you, I just think it's great that at 35 years old, she's in this position. So, what should Penelope do? Penelope, I would be selling the $35,000 of Bitcoin or Light coin, whichever one you do or want to do a combination of both. Because not because I don't think that they're going to continue to go up and eventually in the future. It's because of what's happening with capital gains tax and this is the first time ever, that we have a bill that's being proposed that's going to be retroactive. Are you kidding me? And so, it is very possible that you might go from a 23.8 capital gains tax rate to a 43.4 capital gains tax rate. And so, if I were you, I would absolutely be taking the gains right now in the hopes that maybe they say it won't be that for a year or so and then you're not going to be taxed as heavily on it. Yeah, Okay, good. Next one is from Jeannie. Hi, Suze. I know you don't like car leases. Does it ever make sense to lease a car? My husband and I are in the freelance tv production world and Suze and I, by the way, Jeannie, we know that world really well. She said we have to drive to different locations and jobs all the time. Many of our colleagues lease cars due to the tax credit. Does that ever make sense? So, Jeannie, obviously when you lease a car, it's too, you get to take the least payments at least for the portion that you use it for business off of your taxes. And if you finance a car, you cannot do that. However, you can't normally, when you lease a car, if you're taking a portion of your least payments off the taxes, you can't take your mileage and other things depreciation and other things like that, which you could take if you itemize your taxes and you financed it, because when you finance a car, you cannot take the payments or even a portion of it off your taxes. But if you itemize, you can take other things off your taxes. So, either way up to you, but here's the thing, even though you're taking it off your taxes, you're spending a dollar for you to save what, 50 cents, 35 cents, you're still spending to save. It's not like you get to take the entire payment off your taxes. I personally would rather own a car outright and if I'm using it for business, take my mileage and depreciation, everything off my taxes. And really, I'm not making any payments anymore. So, I still will go for buying a car outright or financing a car versus leasing. You want to know what's funny, KT with tax write offs is that people think, oh, this is a tax write off, I have a $300 a month expense. I get to write it off my taxes. You don't get to write the entire amount off your taxes. So, if you're in the 30% tax bracket, $300 a month that just saved you $90, you're spending hundreds of dollars to save a little bit. I don't know. I think people really need to look at tax write offs a whole different way. We do a Suze school on tax write offs. Maybe I think you should, especially after today. Today's the tax or no, this week was the tax deadline. 30 days ago. He moved it. All right. You have time for one more maybe KT, my last one is very, very sad and it's a really important story. So, I have an idea. I think we should make Sunday. I think I should come back to Sunday school. I think Sunday, we should do a show called the what ifs of Life. We can talk about your what ifs because this last email is really important and it's something that you say, what? How could that happen? And it did. So, I want to share that. So, all of you on today Thursday and it's kind of a festive day. It's a birthday day. I want you to all get ready for Sunday where we should really talk about the what ifs of Life. So that will be the 23rd. Alright. All right, Time for your quizzie, Mrs Travis. Are you ready? No, I'm never ready for these. Never ready for quizzes. You're supposed to say I was born. Not for the quizzie. You're born ready for everything. But a quizzie. She tries to trick me. Try to start trying to Can you all tell her? I am not trying to trick her, does she? Alright? Anyway. Here we go. Everybody. You have to answer this as well as from Ed. I'm retired and I have a Roth IRA, my pension covers more than my expenses. You've touched upon this subject before. IRA contributions have to be from earned income. I understand that he says just for clarity, does the earned income have to be from an actual job or can it be earned interest or royalties or commissions from something that happened in the past even though you are no longer gainfully employed? Well, KT everybody think about it for a second, is earned interest, earned income. Let's start with that one. Does that qualify for a Roth IRA contribution or an IRA contribution? Wait, do I have to answer all of those different parts of the question? Yeah, I am going to divide it into 3. Oh, I was going to say incomes income baby. Anyway, you look at it. So, you would say that his earned income from the interest, interest is a little different. I don't think that qualifies you. Ding, Ding, Ding, ding. Alright. Listen, other ones are income. Yes. So, interest, dividends, things like that are not considered income. And when absolutely not qualify you, ED for a contribution for a Roth IRA or a traditional IRA. However, commission is income. Commissions or royalties. You know why? I know that because I Suze gets ton of them because gets a big stack of those puppies every year. And guess what? Every few months pays a whole lot of taxes. But you could pay a whole lot of taxes on your interest KT. But interest is from an investment, right? So, Ed, your commissions or royalties, even though you're no longer doing it. It's like I wrote a book and I'm still getting royalties from books that I've written all the way back in 1995. So that I have earned that income. So that will count commissions, I still get commissions on certain things today that I sold years ago to clients. So yes, that counts as earned income. You did pretty good there, KT. Because I knew they had that answer Because of you. All right, everybody. We're going to see you Sunday with the topic, the what ifs of life. But until then let's hope none of those What ifs cross your doorstep? All right. Everybody talk to you on Sunday bye bye now.
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Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
I have checked all the beneficiaries of every investment account and insurance policy within the past year.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.
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