Podcast Episode - How Not To Pay Taxes On An Inherited Retirement Account

On this edition of Ask KT & Suze Anything, Suze answers your questions about borrowing against an insurance policy, medicare, is an expensive car really worth it and so much more!

Listen to Podcast Episode:

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Podcast Transcript:

Suze: December 11th, 2025. Welcome everybody to the Women and Money podcast and what KT?

KT: And everyone's smart enough to listen.

Suze: And if they don't listen, does that mean they're not smart enough? Yes.

This is the Ask KT and Suze Anything edition. If you have a question, write into Ask Suze, S U Z E podcast at gmail.com. And if KT chooses it, oh, we will answer it on this podcast. All right. Should we just get into it?

KT: Let's get right into it. My first question is from Susan, and she said, Hi, Suze and KT. My father, who is 75, watches these people on Facebook, and they told him that he could get a life insurance policy and borrow against it. That he can put the stocks into a trust and borrow against them as well for a house. I think it's a scam. What are your thoughts on this?

Suze: It's not a scam, Susan. It's absolutely just stupid. How is it possible that your father at 75 is not intelligent enough to know not to listen to somebody on Facebook that he knows nothing about? Why are they telling him this? It's just stupid. OK. First of all, when you see that you can borrow against something, what does that say to you? It says that you've put your money somewhere and now you're going to borrow against it, which means you're going to have to pay an interest rate to use your own money. Are you kidding me? It just makes no sense whatsoever. I'm very, very familiar with these policies, and my advice to your father would be stay away, stay away, stay away.

Next, anybody can put money into an investment account, whether it's in trust or individual name, and qualify for something called margin, and margin is where you have these stocks, and you can borrow against them to do anything you want, but then once again, it's not free. You have to pay the brokerage firm the money to borrow against the stocks and if the stocks that you borrowed the money from start to go down significantly, there's something called a margin call. And if your father doesn't have the money to absolutely pay that call, what does that mean? They will liquidate the stocks that he has, and he could possibly lose most of his money, if not all of it. It's not a scam. It is stupidity, all right.

KT: I think that's great. Not a scam. It's just stupid.

Suze: Well, you know, all these people...

KT: I think that was just all you had to say.

Suze: Yeah, when you see the word borrow, when you see the word that you can do something with your stocks and borrow against them—twice now, twice in this email you read me the word borrow—just think about what the word borrow means. And if you have the money, why would you borrow your own money? All right. All right.

KT: Next question is from Marie. She said, first...

Suze: What a way to start off the morning.

KT: I know. I'm sorry.

Suze: You did that on purpose.

KT: No, I didn't. I like to rile you up, but it woke you up. That's for sure. OK. Next question from Marie. She said, first, thank you so much for an excellent podcast. I've learned so much from both of you. She said first time question submitter, this situation is a real conundrum. Sadly, my sister passed away recently. She named my elderly father as the beneficiary for her quite large 403b. What's the best way to handle the funds to avoid, ready? Avoid ordinary income taxes.

Suze: Listen, Marie. Sometimes, obviously, you want to avoid income taxes if you can. However, whenever it comes to a retirement account, there's only one way to avoid income taxes, which I have been preaching from the mountain top now for over like 20 or 30 years, however long it's been really, and that is what? By doing a Roth IRA, a Roth 403B, a Roth 401k, a Roth TSP. That is why I've been saying it.

Once your money is in a traditional 403B, meaning pre-tax account, and the owner, your sister, dies and it now goes to your father. It is now in an inherited retirement account and there is absolutely no way to avoid taxes on it. However, stop thinking about the taxes that he's going to owe. Start thinking about how much money is in there and how he will take it out. I don't know how old he actually is, but he will either have to take it out according to how old your sister was when she died, all of that, but something is always better than nothing.

And if you approach this as, I want to just give the money away so he doesn't have to pay taxes, what can I do? What can I do? You're gonna get yourself in trouble. And just know that it is possible that when your father dies, maybe you then get that money because he gets to name who he wants as a beneficiary on this inherited IRA. So stop worrying about taxes. There is no way around them. All right, go on.

KT: OK, this is sweet. Suze from Rosie.

Suze: However, I just have to say one thing. He's not going to take all of this money out at one time. So don't be freaked that all of a sudden he got a lot of money and he's gonna take it out at one time. He's not, OK. It's gonna take out little by little, but probably it's gonna have to be wiped clean within 10 years. It just depends on age. All right, go on.

KT: Suze. This next...

Suze: Are you sure I'm done with that question?

KT: Yeah, 10 years, Suze. This next question is from Rosie, and it's very sweet. She said, I was born in 1941, so currently I am 84 years old.

Suze: Me too. 10 years later.

KT: I do not have a great deal of money. However, in total, I have over $100,000 in savings and CDs. I think that's a great deal of money, Rosie.

Suze: That's a great deal of money for most people.

KT: And then she said, Does it make sense for me to convert any of the savings to a Roth?

KT: And then Rosie gives you an explanation as why she's asking. She said, my family is long lived with my mother living to 101 years old.

Suze: See, Rosie, here's the problem. If this money right now is just in a savings account, $100,000 in savings and CDs, you can't convert any of that to a savings Roth. Unless you are currently working and you have earned income and then you're not converting it, you're just opening up a contributory Roth and putting some of this money in it, but I got news for you. It really doesn't make any sense to do that if it's all in savings and chances are that you're living off of the interest on that savings and everything. No, it does not make sense for you to do that. And in fact you cannot, OK.

You can only convert money to a Roth if you have it in a traditional retirement account. Then you convert it. If it's not in a Roth to begin with, you're not converting anything. You're opening up a new, a new one, and you have to have earned income to do so. And at 84, for some reason, I have a feeling she might not have income, but anyway, go on.

KT: OK. Next is from James. We have a man smart enough to listen. Yay, Suze, I know you want everybody to have a Roth IRA account, including myself, and I want one, but do you want us to take a low-risk IRA out or an aggressive one?

I don't know the difference between the two.

Suze: Well, one is investing your money, risky, maybe.

KT: He said, I don't know what the best option should be.

Suze: Low risk would be treasuries, CDs, money market accounts, maybe even... Aggressive is higher return and higher risk. James, can we just talk for a second? How do you expect me to answer that question? And I want everybody to listen to this answer.

I know nothing about you. I don't know your age. I don't know how much we're really talking about. I don't know how secure your job is. I don't know your health. I don't know your emotion quotient, which means you put in $5,000 and you lose it. Are you going to want to commit financial suicide? Some people can't afford and don't want to emotionally lose even $10. So how can I answer that question? I cannot. So therefore, I can't answer that question. Go on, KT.

KT: But he is smart enough to listen.

Suze: Smart enough to listen. But James, if you've been listening now for a while, you would know that, you know. But just assuming that you don't know a lot about the stock market because you must not even to ask that question.

If you're still relatively young, you have at least 5, 10, 15, 20 years till you need the money and you don't know what to do. Why don't you just dollar cost average every month in a Roth IRA in a Standard and Poor's 500 index fund? Actually, an ETF. All right,

KT: All right, there you go, James. This is from Sarah. She said, My husband and I are 60 and 63. He is retired, and I will be soon. We are very well suited financially. We have always lived within our means and continue to do so and enjoy a retirement of purposeful travel, fitness, and continuing education.

Suze: Don't you find this is an interesting way to start a question? What, what, where's she going? Where's she going?

KT: OK, ready. Here's where she's going. My husband loves cars. Are you ready? He'd like to purchase a car that I feel is too expensive. It will cost about $90,000.

Suze: I don't know what kind it is, KT.

KT: Which I personally feel is ridiculous.

Suze: Don't become like James now.

KT: So Sarah said, I feel, I personally feel this is a ridiculous price to pay for a vehicle. He's a car guy and her husband says cars give him pleasure.

Suze: Now how old is he?

KT: Well, 60 and 63, so I think he's 60. She's a little older and wiser. This is a big argument between us. At a minimum, I'd like him to buy a car that is two or three years old. She said, yes, I know we have the money for this, but it doesn't fit with my values. So, is this a money solution or a value solution? What do you think, Suze?

Suze: Sarah, in my opinion, your husband is going through something that I call the dollar of the decades. It's almost as if men, not women, but when men turn a decade—50, 60, 70—those ages, for some reason they wanna buy a boy toy. They wanna impress other people at a stop sign and say, look at what I have, especially if they have retired. It's a very fascinating thing. And I have a feeling that's what he's going through, and you say that he always loves cars.

Well, think about that. KT and I are very, very wealthy women, and I love cars, but it would not matter how wealthy we are. No way would I ever spend $90,000 on a car.

KT: Tell them what you drive.

Suze: I drive a 2012 Mercedes convertible that's worth now maybe $10,000 or less at this point in time.

KT: 53,000.

Suze: All right, but it's, oh, now you know numbers.

KT: Because I'm, I'm the driver.

Suze: Anyway, but it's like what a waste of money in my opinion. However, it's something that he wants, and with KT before either of us spend a large sum of money or wanna buy something, both of us have to be in agreement because it's both of our money. And this is both of your money, and I always go with the one that doesn't want to do something. If KT doesn't wanna do it, and I really wanna do it, we do not do it, cause you are gonna be a little bit resentful the whole time.

But here's how I would deal with it if I were you. You have to sit down with him and you have to say, can we just seriously figure out what this car is actually going to cost us because Sarah, it's not just $90,000. There's gonna be tax on it, there's gonna be all kinds of things on it, but just let's say it was $90,000 including tax. But that's not where it ends.

When you own a $90,000 car, you have automobile insurance. So you're looking at, at least, depending on his record, everything else, even his FICO score, believe it or not, $4,000 to $6,000 a year in insurance. You're looking at maintenance on a car like that. And maintenance could easily be $2,500, $1,500 a year. You're looking at depreciation, by the way, of anywhere between $9,000 and $12,000. Actually, it could be more like $18,000 the second he drives it off the lot. Just saying so, he lost that money right there. Fuel for the car. $90,000 cars unless it's electric, and I somehow I have a feeling it's not. It's gonna be at least, depending on price of fuel, $2,500 - $3,000 and then registration and all of these things. So you're looking at least besides the $90,000, $8,500 to $10,000 a year just to have that car, OK.

Now let's do the math on the real cost of this car because he's just looking at $90,000. The way that I would do it is I would say, OK, what is $90,000 deposited into an account right now? Let's just say that's true, and you add $8,500 a year for five years. What is the cost of that car over five years? And let's just say that money was able to make a 7% annual average rate of return, you're looking at about $175,000 for the cost of that car and in five years, if he wanted to sell it. Good luck if he gets more than $38,000 to $45,000.

So he now is making an investment as you are entering your retirement years, and he is no longer working, and he is looking at how much money you have, and he thinks that he can just do this. He has to understand the financial ramifications of making a purchase like this. You never look, everybody, at just what something costs you to buy. You have to look at what does it cost you to keep, right, KT?

KT: Absolutely. You know what I would do?

Suze: What would you do?

KT: If I were her? I would, because they have all of these very special like fancy car, you know, loan places or renting places. I would rent one for a week, see if he gets it out of his system.

Suze: Now, what I would do is rather than buying it right away. There's always going to be a $90,000 car that he can buy. And given that Sarah does not want to do it, it's going to cause problems between them. It just is. I just have to ask you this question. If it was me, what would you say?

KT: Seriously, at your age and with the amount of money you have, Suze, if that car makes you happy, buy it, but I'm not gonna drive it.

Suze: Oh, then I would never buy it. Yeah, it's at this time in your life, everything you do with money, both of you have to say yes, and if you don't, and it really upsets you. I'm sorry, I would just say no. Now, maybe he wants to buy a car that's two or three years old and you could compromise somehow like that.

KT: Yeah, meet him in the middle. And say to him, let's sit down and look at the expenses because Suze just laid it out for you and Sarah say, let's meet in the middle. Let's compromise because I want you to be happy, but I also want you to respect my values.

Suze: Yeah, but the truth is, I'm telling you, it's the dollar of the decades, 60, uh-huh, OK.

Suze: I tell you, a car is such an... I, I know we're going on,

KT: Yeah, because Suze's a car person, Sarah. I'm not at all. I don't care what wheels you put under me, but she loves cars. She likes to go. She likes to go to the showrooms and walk around and look, and she knows everything about cars.

KT: She's been looking at me for probably the past six years saying maybe we need to think about what our next car will be since this one's so old, but she loves this little Mercedes.

Suze: I can't do it. I just can't waste money like that. I just can't do it. It goes against my own values. But KT, what I was gonna say to you and everybody else, please understand that a car is actually one of the most dangerous investments you can make.

Because all it takes is somebody smashing into you, somebody cracking your windows, somebody stealing it. It is not an investment. It's simply a showoff toy for others if you ask me.

KT: Well, that may be that kind of vehicle. Most cars are for you to use to get to work, or travel.

Suze: He's retired. He doesn't need a $90,000 car. But hey, what do I know? All right.

KT: This next question is from Debbie. She said, Dear KT, I'm listing your name first, so hopefully you'll pick me, and I did, Debbie. You were right. She said, Dear KT and Suze, if you are single, should the primary beneficiary on an employer retirement account be the same as the name of the trust, or is it best to name a designated beneficiary instead? She said, I'm desperate for an answer from you.

Suze: If you're desperate, Debbie, let me see if I can help you here. Oh my God, my desperate one. Here comes your financial lifesaver to rescue you. Just put it in your individual name since I don't know what kind of trust you have, and it has to be a see-through trust and everything like that, if it's a beneficiary of any retirement account. Since you're single, right, the beneficiary should be the name of whoever you want to leave this to, all right. And if you're married, it should absolutely be the name of your spouse, by the way, for those of you who are married. The contingent beneficiary, if you know it's a see-through trust, can be a trust. All right.

KT: OK. My next question is from Carla. I love this question. She said, I'll be turning 65 in August of 2026. I'm still working full time with no plans to retire anytime soon. I have good medical, dental, vision, and prescription drug benefits. Do I still need to enroll in Medicare? If so, what parts? I love this question.

Suze: How old is she?

KT: She's 64 today, but in August next year, she'll turn 65.

Suze: Yes, I hear that. But how long does she plan to work?

KT: She plans to not retire anytime soon.

Suze: She didn't give a time frame for that. All right, let me just see this for a second.

KT: Can I just say something? I couldn't wait to turn 65 to get Medicare benefits.

Suze: But you weren't working for a corporation that already gives you health insurance, Miss Travis.

KT: OK.

Suze: Right. So, I'm so glad we were happy to do so, but we didn't work for anybody but ourselves. So, my dear Carla, here's what it depends on — two key facts, all right. Number one: How many employees does your employer have?

KT: With question, like why?

Suze: KT, this question and answer is so critical, I can't even tell you. Because if her employer has 20 or more employees, then her employer plan has to remain as primary, and she does not need Medicare B or D at 65. She doesn't need those at all. She can — and she should — delay both with no penalty because it's B and D that can be expensive.

However, if her employer has fewer than 20 employees, then Medicare becomes her primary, and her employer plan becomes secondary. So in this case, my dear Carla, you must enroll in Part A and Part B at 65 or you risk being able to have any claims that are absolutely approved. So you have to first confirm your employer size, and I can tell you to do so — just call your HR department and ask them.

And the question becomes should she enroll in Medicare A at 65, and she enrolls only in Part A if it is free, and she has to figure that out. So if she's worked for 10 years, 40 quarters, da da da, she'll be able to do it. But if she has an HSA account, a health savings account, and she's contributing to it, if she enrolls in Medicare Part A, she won't be able to have a health savings account. So she has to know that because it will immediately disqualify her from it. So, Carla, if you are contributing to an HSA, then delay Part A until you stop contributing. If no, enroll in Part A at 65, again, only if it's free.

KT: OK. My next question is from Janeth.

Suze: What kind of name is that?

KT: Janeth. It's Janeth. It's not Janice, it's Janeth.

Suze: I'm wondering why they named her that.

KT: Probably someone Jane and Beth — Janeth, like maybe two names together.

Suze: Only you would come up with that.

KT: Janeth said, Suze, I'm 60 years old. I'd like to know if it's a good idea to take money out of my 401k and pay off the balance on the apartment where I live. The HOA fees are high, and I haven't been able to sell it. My mother lives with me. She has dementia. And I am on my own. My annual salary is $55,000. Hmm. And she said, thank you.

Suze: How old is she?

KT: 60, and her...

Suze: Do you think she's still working?

KT: Yeah, she said her annual salary is $55,000.

Suze: I'm not listening very good this morning.

KT: No.

Suze: That's because I have water in my left ear.

KT: You do?

Suze: Wanna hear it squeak if I blow my nose?

KT: No, it squeaks real loud when she does that. I don't like that.

Suze: Does it irritate you?

KT: Well, no, it seems like something's wrong that this water is stuck in there.

Suze: Well, who goes in the pool or the ocean all the time?

KT: You do.

Suze: All right, anyway, so Janeth, here's the thing. KT, pop quizzy.

KT: Should she... should she do what?

Suze: What are you talking about? Should she do what? You just read this to me. See, she already went on to...

KT: She said takes money out, what she... No, don't take money out of the 401k. First of all, when she takes it out, number one, she has to pay taxes on it. So if she's 60 — wait, 59 and a half, she doesn't have to pay...

Suze: A penalty.

KT: A penalty. But she still has to pay on it. Second, that's her security blanket. I think that she should just aggressively try to sell the apartment and downsize or do something. Do not touch the 401k. Yeah, no way. Don't touch it.

Suze: But here's what I'd like you to think about. If you need to sell something, and you're desperate enough to think about taking money out of your 401k and you do not tell me how much you have in your 401k and what the balance is on your apartment — do you all get the idea, I cannot answer these questions for you if you don't give me the facts, and that doesn't mean it has to be a three-page essay. It could have been, should I take money out of my 401k that has $500,000 in it to pay off the balance on the apartment where I live? That's all it needed to be.

Because you're saying since the HOA fees are high, that's kind of why you wanna sell. If you took the money out of your 401k, think about how much money you would lose in taxes, all right? Number one. Number two, since you're willing to lose that money in taxes from your 401k, why don't you reduce the price of your apartment by that amount of money, since you were willing to lose it anyway, to get somebody to buy it because you're lowering the price. Do you understand what I'm saying to you? If you can't sell it, it means it's priced too high. If you need to sell it and you're willing to take money out of a 401k, lower the price until somebody buys it, period. All right, KT.

KT: Yeah, don't touch the 401k. OK. This is from Catherine. This is my final question. She said, My dad put a million dollars in an IRA for me back in 1987, before he remarried. In the last six years, my brother said he took out my money and gave it to him. My brother hasn't worked in six years and has received at least $150,000 a year from my dad. He's lost all of it.

My dad, who is 90 years old, said to us that my brother and I will get nothing when he dies because money doesn't create happiness. Hmm. Sounds a little sad, right? He can do anything he wants with his money. He worked hard for every cent, but I'd like to hear an honest explanation as to why he took care of one child and not the other.

Suze: So, the father probably opened up an IRA in the father's name. He did a transfer, $1 million, and made Catherine, the daughter, the beneficiary. Somewhere in there, however, it doesn't matter who the beneficiary is — that only comes to play upon death. For some reason, the father was taking out money every year or however many times he did it that Catherine may or may not even know about until all the money was depleted. Now we don't know how the money was invested. And maybe even years later, it was only worth a million dollars. Maybe he just put it in an account that wasn't earning any interest, who knows?

So, if you think about it, KT, $150,000 a year over six years is like $900,000. So he may have used up all of it, who knows what happened to the rest of it, but... The only way to solve this is for Catherine, for you to stand in your truth. Not why did he favor one child over another. Not any of that. Just sit down with your dad and say, Dad, listen, I know it's your money. You worked hard for it, and you can do anything you want with it.

But why? I just need to know why. You gave at least $900,000 to my brother. You told me that you were opening up this account for me, this $1 million IRA for me. And now you tell us neither of us are going to get anything, even though my brother got $900,000 of what supposedly you told me was mine. I understand that money doesn't create happiness, but it sure does create security. So can you just tell me why, so I can understand this.

KT: Also, the father's very wealthy, Suze.

Suze: I know he has approximately $9 million.

KT: And this is 40 years ago. It had to have earned some money.

Suze: We don't know. We don't know anything, but here's the point, Catherine. I have no idea. KT has no idea. You have no idea. But you do know that you have a need to talk to your father about it. And you say, is it my business, in this email. The reason that it's your business is because it's bothering you. And when you hold something in, it's going to eat at you. It's going to eat at your relationship with your father. It's going to eat at your relationship with your brother. It's going to eat at you, especially if you're not doing well financially.

So if I were you, you have absolutely nothing to lose and everything to gain and say, Dad, can we just sit down, the two of us and talk? I really need to talk to you. Could you please do that with me? And sit down not in an accusing way, in an attacking way, but speak to him directly from your heart and speak with such love for him. Speak with him with such respect for him. Speak with him with the intention of you truly understanding all of this — not that you're going to get a million dollars — but you just want the truth. And you'll come out fine. And after you've done that, can you just write me and tell me what happened?

KT: That's a wrap, Suze.

Suze: What are we gonna do now? You have plans. I can tell. I know what you want to do today. Tell them what you wanna do today.

KT: This week, the only opportunity is this afternoon I can try to catch some yellow eye or yellow tail.

Suze: KT, believe it or not, everybody is out of fish. She has no fish to eat. I personally don't like eating fish. I'm like...

KT: Suze's not a big fish lover.

Suze: Yeah, baby, we don't have to eat fish. Yeah, baby!

KT: It's the healthiest, most delicious food we can catch.

Suze: You can catch, right? Actually, KT, you know, when I woke up this morning, I looked out the window, I went, ugh.

KT: Because it was nice.

Suze: It was nice. And as much as I love when she goes fishing, I love it so much more when you just stay around here.

KT: I can stay with you today if you like.

Suze: And not fish.

KT: Yeah, if that's your wish, I will grant your wish. What do you think, everyone? Should I try to catch a fish or grant her wish?

Suze: Now, here is a perfect example of two of us disagreeing, kind of. Right, on whatever, but I'm gonna switch my vote from no to yes because number one, doesn't really cost anything to do what you're gonna do. It's gonna save money eventually on fish because otherwise you're gonna end up having to buy it when we go back to Florida, um, and so go for it, girlfriend.

KT: Yay, woohoo.

Suze: All right, everybody, until next time there's only one thing we want them to remember, and it's what — fish first.

Suze: Fish first, then people, then money, then things, right KT?

KT: And you stay safe.

Suze: Talk to you soon. Bye bye.