401k, Emergency Fund, Home Buying, Home Mortgage, IRA, Must Have Documents, Retirement, Roth IRA
June 03, 2021
Listen to Podcast Episode:
On this podcast of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners Jen, Scotti, Jason, Inuti, Wilson, Suzanne, Silvia, Analli, and Roma, all selected and read by KT.
June 3rd, 2021. 2 more days to go Suze. Tell everyone why? Two days to go till her birthday. My Seventieth Birthday. Everybody what I want. She doesn't want a party. She doesn't want any fanfare. She doesn't definitely does not want gifts, meaning physical gifts. In our family, we make things so she likes things that you make or write her a card or a letter. But nothing but KT, all she wants to do is spend her day with me. And that has been true since the day I met KT. It's like I've heard I've thrown her, wait, wait, wait. I've thrown you some great surprise parties and birthday parties. And you are always the last one to leave and the first one to wake up and say, KT, I had such a great time. Did everyone have fun? What did they say? What did they say? What did they say? But you have to admit, out of all the birthday parties, the 50th and the 60th that I threw for you, the best. And your twin sister, Lynn over the top. The best, over the top. But the difference is KT really loves parties and entertaining. Suze does not and I don't. So, all right. But that's not what we're here to talk about KT because today is ask Suze and KT anything. Oh, I said doing anything. Now you're adding the word KT anything versus, I love that. I love that. It was perfect. Perfect. So, okay. All right, let's start. Also, let's remind everyone that you're going to be on the Today Show on June 8th. Yes, I am now listen to me, everybody. Tuesday, next Tuesday the 10 o'clock hour. Don't tell them what you're doing. I'm not. But with Hoda and Jenna. And here's all that I'm gonna say for those of you that are interested in the three-step reset program. Seriously, you make sure that you tune in June 8th to Hoda and Jenna. Do you hear me? Okay, that's it. Don't tell them anything. Okay. Okay. All right. Let's get started. First email and question is from Jenn Brown. Okay. Ready? Hi KT and Suze. But she asked the question to Suze. She said Suze. What is going on with student loan forgiveness? She has about $22,000 left on her PhD student loan. And she said, given that forgiveness seems to be less of a reality. Should I just pay off the remainder of my student loans if I can afford it? So, here's the thing, Jen, we still have till September 30th for you to have student loans at 0% interest. So, it's not going to hurt you not to pay them off and not to make any payments on them whatsoever, especially since you have the money to pay them off in full. So, my answer would be different if you were going to have to go back and making payments after September 30th. So, let's just see what this administration does. It is true that President Biden dropped it from his budget from all sorts of legislation that he is proposing. He's just dropped it and I'm not exactly sure what that means. I also think that he is waiting to hear if in fact, he has the executive authority to just sign it into action. He thinks he does, many of the people around think he does not. So, let's just see what happens. But you have till September 30th to make that decision once in fact, it possibly does happen. September 30th comes and nothing's passed. You might want to think about paying it off, then pay it in full. It just depends, it depends what's happening in September 30th is a long way. This is something that they really, really wanted to do KT, but you know, but they wanted to offset it about that, you had to do so many years. It's a little bit more complicated than I think, keeping my fingers crossed that it's forgiven for you and for all the students, for everyone that has student loans. All right, next question. This is from Scotty. I like that name Scotty. So hi, Suze and KT and it says KT, please it's like a please, do not be turned off by the topic. I'll make it quick. Does everyone know what they're going to talk about? I have a feeling. So, Scotty says I'm doing a backdoor Roth this year because my husband and I make too much money to do a contributory Roth. I was going to wait until December to deposit my $6,000K, in the traditional IRA and then immediately converted to a Roth. But you said it should be deposited earlier in advance. I'm worried because the default investment at Fidelity is a money market so it is sure to make a few dollars in earnings between now and December when I do the conversion. So, Suze, what should I do with those earnings after I do the conversion. So, Scotty here is the thing that you need to know if you're simply putting money into a traditional IRA and let's just say you took that off your taxes, let's say that's true and now you convert it later on to a Roth IRA. Anything in there, 100% of it is absolutely going to be taxable. So, the little amount of money that you earn in a money market account isn't going to make that big of a deal. However, if you are doing a nondeductible IRA, which means that you did not take it off of your taxes and now you convert it. You're just going to owe income tax on the little amount of money that you earn. Just that simple. All right. Next questions from Jason. So, Jason and his husband actually have been fans and watching the Suze Orman show on Saturday night. It was their date night and they've learned so much from you. They're both so thrilled. Now they're in their early forties and they just adopted a baby boy. Congratulations Daddies. So, Daddies, do you have the must have documents? They do. All right. All right. That's the question. So, they have everything in place. They are not planning to leave anything to their son. Silas Jude is his name, but because they know that he's too young, they can't do that. However, the question is, we have the must have documents. What is the procedure for updating our trust? Without going through the process of having the documents notarized again. Sorry, boyfriend. Gotta do it. You gotta do it. Every time you make a change in a living revocable trust, you have got to go and get the new documents notarized again. Otherwise, think about it. Somebody could just do that, not have them notarized and make all different kinds of wishes as to where you wanted your money to go after you had died saying, yep, this is what they wanted, forged your signatures. No, you have got to always get them notarized, but I just have to correct them, KT. Listen, even though you adopted a child and now you have a child, you can leave money to that child, but you leave it to them via the Living Revocable Trust. And you name somebody as the trustee who oversees that money for your child. You can't leave it to them directly because what would they do with it? They don't know that it's even money, at this point. But what you do is you name a trustee, who if something happened to you would be responsible financially speaking for the child's money. Okay, question two. They have two questions. What are your thoughts on having my spouse as a beneficiary to my TSP plan rather than my trust? Always, always, always you should have if you are married and you have a TSP, you have a 401K, you have a 403B. Whatever your retirement plan happens to be Roth IRAs, traditional IRAs, you always have to make your primary beneficiary, your spouse and the secondary beneficiary is the trust. If you are not married, then your primary beneficiary is always the trust. Why is that? Because if you are married then your spouse gets to take over your retirement plan as if it was his or her own a trust cannot do that. You always want to make your spouse as the primary beneficiary of your retirement plan and the trust, the secondary, I didn't know that. That's good. How could you not know that? I forgot truthfully, I forgot that if you're married or not married. So, who's the beneficiary of your retirement plans KT? You are versus the trust, right? Yeah, well, so you knew that, but that's because we always do our paperwork together. But if you asked me those questions, I wouldn't know that. I know that you are. Alright, but here's, oh, okay. We have to film, we have to film our faces. Okay, come on. Next question. I have so many. Look at this pile. This is from the Inuti. I love this name. I don't know where it's from. I need you to know what to do when it comes to your money KT. This is hello KT and Suze. This is another KT and Suze. I want to start off by saying thank you for everything. You're doing. The podcast is a gem and I wish I started listening to it earlier now. And inuti if you don't know, you can listen to all of these. How many do we have? No? Over 200. Oh, we're getting close to 300. We have hundreds of podcasts. You can listen to them any time you want all the time. They got better and better as time went on. So, I don't know about season one, but go on. No, they're, they're all good. So, in New two is a 36-year-old woman. She has 67,000 in a 401K. With a former employer in Las Vegas. She plans to transfer that to a traditional IRA and then finally a Roth IRA. Can you please tell me if it's wise to first invest the funds while they are in a traditional IRA before transferring to a Roth IRA or to wait until I have the funds in a Roth? You know, it depends and so listen to me closely right now, everybody. If you were to convert, let's say at the top of the market, all the stocks that you have are at the highest point they've ever been and now you convert them to a Roth IRA, you can either do it a traditional Roth. You know, you can either do it via a traditional IRA, into a Roth or you can just really put it into a Roth IRA, it will be 100% taxable to you at that time. And now those stocks are in a Roth IRA, but now the market starts to go down and down and down and now you're $67,000 that you have in stocks has gone down to $30,000. And very possibly if you had just waited and converted, if the stock market had gone down, you would only owe taxes on $30,000 versus the $67,000 years ago. It used to be that you could reconvert and then go back into it. So, you weren't paying taxes on money that has depreciated, you can't do that anymore. So, here's what I would do if I were you, I would absolutely transfer all of it to a traditional IRA, and then little by little I would convert it to a Roth because remember any amount of money that you convert you will owe ordinary income taxes on and I would see here what does the market do or what do the stocks that you own? What do they do over time? Do I think that they're going to absolutely go higher over the next year or two? I don't think so. I personally think as I've told all of you that we absolutely could be trending down. That's not a crash. It's not you know, I've said that to you before I said it was going to start around April 5th and then happened again around May and it continue into June and I just think there are many stocks that a lot of you own that are down 35%, 60% even more from the high. That doesn't mean you are down money because you hopefully bought them a long time ago. So, you still have gains just not as much as you had at one point. So, it's important to understand that if you have money that you're going to be converting and owe taxes on it, you just might want to do it little by little and just see what happens with the stock market, if it starts to trend down or the stocks that you're in, start to trend down. But then KT, there are some stocks that didn't trend down, they're staying right where they are. So really it depends what you're invested in. But I would do it little by little bottom line, no big jumps. Right, okay, Suze. We're going to have to do another show a Sunday school on Roth again because here's another question. A little confusion with this five-year rule business. So, this is from Wilson. Wilson is one of the, you actually want to do. No, no. I said Sunday school, that's not KT. Listen, listen everybody, if you are confused about the five-year rule about Roth IRAs about the pro rata rule, that has to do with Roth IRAs and converting them all of that is in podcasts and their titled, that I've done. So just scroll through it, you know, because I don't really want to have to do the same podcast over and over again when I've already done it. Okay, so let's answer Wilson's for him. I don't mind answering questions about it, but I don't know if I'm going to school on it. All right, so Wilson was one of the boys and now a man smart enough to listen. He's been following you Suze since he was 13 years old. At least, we don't have to say you're an old man, Wilson. She hasn't, you haven't been following her that long. So, just a quick and simple question regarding Roth IRAs and the five-year rule. So, he set up the Roth IRA savings account about 10 years ago. He put $100 into it. He has not touched it since, but he's looking to open a brokerage Roth IRA but wants to know if he still has to wait five years based on how long the account has been open or is the five-year rule done because he contributed to a Roth IRA account more than five years ago. Well, KT, another quizzie. You're done. We're doing quizzie time. He's done. Listen, it doesn't. The question was, should I have continued to put money in, blah, blah, blah. Was there a minimal, no, Suze said once you open it, whatever's in there, it doesn't matter the five years or five years. Got that right. Now, why is it that you know that? And then said, I remembered, I remembered what you said. Five years is five years. No matter what? Yeah. Okay. I'm still worried about you. All right. I'd be worried about the next one. Okay. Ready everybody. I'm looking at Suze's face. I know what she's gonna do. This is from Suzanne. Is it on insurance? No, it's about love. Ready, I'm listening for a few months. I know anything about love. Yes. You know a lot about love, but you know a lot about this kind of love. Ready? I've been listening for a few months and I can't get enough. I'm 52 years old. I'm dating a guy for a year and a half who's 57. Suze, he has no fun saved for retirement. No IRA, no Roth, nothing. He feels he has about 80K In equity in his house. He feels he'll never stop working. He's 57, right? I'm never gonna stop working. I'm not feeling comfortable with his response. So, he just started putting 4% into his jobs 401K. With matching 2% to make me happy. I'm not sure I want to set myself up for failure in retirement. It's not like I have a ton of money in my retirement, but I'm trying. Please advise. Now, why do you say that, I have a lot of experience with this because you hear many, many questions like this about women, okay, who tend to finance their spouses, partners, or whatever it may be and you don't like that. You don't like to see these women and she's 52. She's been really diligent. She's saying, Hey, all right. All right. I was just curious thinking, why is that? Because before you, those are the type of women I dated. No, no, no. That has to do with your experience as a personal finance expert. Kind of also personal in terms of who I dated. But that's besides the point, right? Suzanne and everybody else. I want you to listen to me. You know, you said something in here that really caught my little ears and it was, I think you said I'm not feeling comfortable with his response. We don't need to understand why we don't feel comfortable. We need to pay attention to the fact that we don't feel comfortable. How many times have I said to you have got to trust your gut, more than you trust others? Others can tell you anything they want. Others can start to do anything that you want them to do. That's the other thing that I didn't like. He's doing this for you, to make you happy, you said. That's why he's doing something. He shouldn't be doing this to make you happy. He should be doing this. Because at the age of 57 he should realize that things happen, especially after this year, that we just had, you can get sick, you can get Covid, you could die. You can have something happen like happened to me and maybe not be able to work again. Whatever it may be. How naive is somebody at the age of 57 to think, oh, I'm just gonna work forever and I'll be OK. That tells you a lot about him, my love. And so, you need to trust your gut. Listen, you can continue to date him. You can do whatever you want. But I think you already know because I have another saying we never really when it comes to a relationship, we never really ask a question that we don't know the answer to. So, when you're asking me how I feel about something or what I what would my advice be to you? You already know the advice. Just go on and find somebody else. That's really the bottom line. Okay? It is KT. She already knows it. So why waste it. Okay. I told you all, I kind of got a feeling what you would do. Okay. Next one is from Sylvia. Sylvia is 59 she's a teacher assistant, she wants to retire, but she can't. She's a single mom raised two kids, but here's her problem. She said Suze, I'm paralyzed about money. I haven't done anything to prepare for my retirement now I'm panicking. So, she's asking you do I trust an advisor on zoom and give my information. I have an appointment with an advisor. I'm very stressed and confused knowing that I'm so late trying to plan for the future. Oh, my dear Sylvia, first of all, I'm going to say this to you, you must watch the Today show on June 8th. Just watch it. Okay, that's all I'm going to say next Tuesday. I'm just going to say that to you because you just do. All right, number one, number two, you're 59 years of age and you say in here that you've listened to me for many years. So, then the question becomes, if you've listened to me for many years, what has prevented you from doing that? Which you know you should do with money with that, which I have told you for many, many years that you need to do with money. It's something that you need to deal with because obviously it is your emotions, your fear, your shame, your anger that are the main internal obstacles to wealth, which is why I want you to watch the Today show on June 8th at 10 a.m. with Hoda and Jenna. However, it is better to do nothing than something you do not understand. So, you ask me do I trust an advisor on Zoom and give my information? No, you don't. Because you're afraid of that person. You don't really know that person. You don't know what you have, what you don't have. And you need to first deal with your emotions about money, your fears about money before you can do anything with money. Otherwise, you will always buy at the wrong time and sell at the wrong time. So, what I would tell you to do, however right is that when you say I haven't done anything to prepare for retirement? I'm panicking. All right. Let's really think about this. If you haven't done anything, that means you probably also don't have an emergency fund. So, I want you to start number one within an emergency fund and I can tell you who you can trust. You can trust Alliant Credit Union. I want you right here and right now, just start doing one thing. And that one thing is this, go to myalliant.com. And I want you to become a member of Alliant Credit Union. It's not going to cost you anything. You'll see when you get there. And I want you to start contributing $100 a month. At least that for the next 12 months. Because at the end of 12 months you're going to get $100 plus interest. Yes plus 0.55% interest, which really is one of the highest interest rates you're going to find anywhere. I have people who have been writing saying I've put in $250,000. They're putting in a lot of money. That's not what I want you right now, Sylvia to do. I just want you to start to feel that you own the power to control your destiny and the way you do that is by taking action. The only way to conquer fair is through action. So, you have to promise me right here and right now and this goes to all of you who haven't done this yet. You need to go right now to myalliant.com and sign up for the ultimate opportunity savings account. Everybody remember this is only going to be offered for the next six months and so please take advantage of it again. I will just briefly remind you that you need at least $18,000 in a money market or a savings account today to make $100 of interest if they are paying you 0.55%. So, that's the first thing I want you to do, just start there and listen to the podcast. Go back to previous podcasts and then if you have extra money, open up a Roth IRA at Charles Schwab or at Fidelity or wherever and start putting little amounts of money little by little into the vanguard, total stock market index ETF symbol VTI. So, that's all you have to do to start. I would not be seeing an advisor if I were you at this point in your life. Suze, next question is from Analli anomaly is 50 years old. She's been with her partner for 34 years, yep. Ready? They're going through a separation. I knew it. You know, when she starts by saying that they've been with their partner, not my spouse. Number one. It's a partner. She needs to serve him divorce papers. Okay, her question is that she's got a retirement account. She's got money that she earned from a legal disability fund. She's been you know, investing in 15 years. The bottom line is she is going to probably walk away from the divorce with an increase of about $50,000, and she's wondering if she should use that money to buy a home or invest it. Here's the thing, another rule of thumb, what's my rule of thumb, KT, when you suffer really any kind of really unexpected emotional loss, even if it's a divorce, KT, um don't do anything. Don't do anything for at least one year. Just let yourself heal, sit with the change in your life. And then, and I know Analli thinking that she wants to move on. She's serving him divorce papers and so on. Analli, I'm sure you're thinking that it's really isn't going to bother you that you've been wanting outta here for a while probably. And now you finally worked up the courage to do so. It's still a change. It's still a change. So, there's no way for me to be able to tell you what you should be doing with that money on any level, right? Because I don't know enough about you. But for now, I would just let it sit and see how it feels. Not being with somebody at all. All right, Suze. Would you kindly guide me on the following questions? In the next two years, I'd like to sell my house in South Florida, retire and relocate to Central Florida to be closer to my children. I'm interested in a new housing development that would start selling around September of this year. Probably take about 10 to 11 months towards the completion and closing. Should I guess the question? Wait, I'm currently still waiting. Guess. Nice. I do quizzie with you, you could do I guess the question with me. All right. Ready would it be advisable to pull my savings approximately half a million towards the purchase of the new home and once I sell my current home, which is free of mortgage, replenish my savings. So, this is bathwater question, throwing out the baby with the bathwater questions. That's what that's saying is like, do we don't throw out the baby with the bathwater? So, she has half a million dollars in saying I get it, KT. But you didn't let me play guess the question. And I would have gotten it right. All right. So now let me answer. So, the question is this I know the question, does she have to pay capital gains taxes when she sells her current home, since she would be purchasing a new home before selling? Oh boy, you know this is a no, that's not why I said, oh, boy, that's not it. So, it concerns me, KT because the laws have changed for a long time ago, on real estate and people in terms of when you sell it and then you get to take you know. Anyway, all of you really need to get up to date on it. And here is the only rule you need to understand, if you've lived in your home for two out of the past five years as the primary residency and then you sell it, you get if you own it by yourself a $250,000 exemption from whatever you paid for it. Or if you own it with somebody married, finally, jointly, whatever it may be, it's a $500,000 exemption. So even Roma, if you had moved to your new home and now, you're living in your new home as a primary residency, you still could sell your old home and take it off as if it were your primary residency because you lived in it for two out of the past five years. So, let's just get that straight. However, no, I would not take $500,000, that's in my savings account and pay off this new home until you've sold your current home. Now, why is that? You said in here that you want to sell your house in South Florida? I live in South Florida. There's something in South Florida as well as the Bahamas, that we deal with starting every June 1st. And that is known as a hurricane. And what happens if all of a sudden you paid off everything took all of your savings paid off this new home, hurricane comes through in the next two years and you don't have your home in South Florida anymore. And then all of a sudden, the insurance company says, you know what, we're not going to cover you because it was a flood versus a hurricane because whatever it may be, you have to be really careful here. So no, you are not to do that. What I would probably tell you to do, sell your house right here and right now get rid of the possibility of losing it in a hurricane, number one. Decrease your expenses because you can now probably go and just rent a place, or stay with the kids or stay with the kids or whatever it may be, we are at the top of the real estate market or very close to it. Get that money, keep your money that you also have and now you have your cake and eat it too versus whatever the saying KT was, baby Bath water. I rather have your cake and eat it too. Then baby in bathwater. But that's besides the point. That would be my advice to you, KT. Are you ready for a quizzie? I'm ready, Suze. I was born ready. That's the attitude that I want. All right. Because everybody you have to have the desire to learn, to learn if you don't have the desire and you just think you don't know and you don't want to know you'll end up anyway. You'll end up like never mind anyway. Alright, you're ready. Here is the quizzie, everybody. It's from Amy. She says I'm 52 years old. I make approximately $73,000. I contribute to my work retirement account in both a Roth 401K 8% and a traditional 401K at 8%. I also have, she's taking notes everybody. And this is this is very good. Right, so I also have a Roth IRA that I contribute to separately. Is there a total annual contribution limit amount for the retirement accounts? Now, before you answer. Okay is it A) is it $33,000 a year for her Roth, her traditional and her Roth IRA. B.) Is it $26,500 a year? Or is it C.) $25,500 a year? So, what is the maximum that you can contribute to a 401K, even though it's divided between a Roth and a traditional? As well as a Roth IRAm Is it$ 59,500, $26,500 or $25,500, everybody. You know I have to be honest with you. I'm not familiar with any of these numbers so I don't. No, I'm telling you the truth. I know you're telling me the truth. I don't think it's any of them that they are. So, I think B. 26.5k. You do. Yeah. 33. So, it's $33,000 dollars. How did I get there? Yes. Go on KT. This really cracks her up, everybody. Okay. Come on KT, get it together. No, tell me what you're doing was you really What? I really didn't recall, any of them. All right, but because we're now combining 401ks with Roths, so let's just break it down. What is the maximum that she could put per year? She's 50 or older into a Roth IRA or a traditional or a combination thereof? $7,000 Right. All right. So, it would be $6,000 if she was under 50, $7,000 if she's 50 or older. So right down $7000. Okay. Okay. What is the maximum that she could put in to a 401K, regardless of whether it's a Roth, a traditional, or a combination of the two? It's still a 401K. It's not like you get to put the max into a traditional IRA, the max into a Roth IRA. It's under the title, IRA. The maximum is $7,000, if she's 50 or older, no matter how she divides it up. Same is true with a 40 K. Regardless of how she divides it up 8% into a Roth 8% into a traditional. The maximum that she can put in per year is what she's 50 or older? If she was under 50 the maximum would be $19,500 because she's 50 or older, KT, she gets a catch-up contribution of $6,500 which brings her to $26,000, as the maximum she can put in per year into a 401K. So that 26,000 plus the $7000 in an IRA. Brings her to $33,000. Did all of you get that right? Do not be confused everybody. The amount that you put into a 401K. Has nothing to do with the amount that you put into an IRA, they are separate and you get to have both. So, you got that now? Okay. I do. Alright. That wraps another asked Suzy and KT anything. So, continue to write in via the firstname.lastname@example.org or on the women and money app that we have. But again, we will see you Sunday. We're going to see you Sunday and we're going to tell you all about Suze's birthday on Saturday the night before. Well, don't get bored because there's not a lot right, KT, to tell them because we're not doing anything. Oh, my God. All right, everybody, until then you take care. Bye, bye, bye.
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