401k, IRA, Podcast, Retirement, Roth IRA, Saving, Saving Money
May 16, 2019
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This episode of Ask Suze Anything is dedicated to information about retirement accounts, as Suze answers questions from Women & Money listeners: Kayla, Janeece, Krissy, Ashleigh, Jackelyn, Letty, and Lynn.
May 16, 2019. Ask Suze Anything. You are asking me everything but you're really asking me if I were to look at all the questions that I get, and I do look at every one. And by the way, if you want to send in a question, you should send it to ask Suze podcast. That's S-U-Z-E email@example.com. And when I look at all of your emails, the main question that you are asking over, and over, and over again, has to do with your retirement accounts. You are still so confused about Roth IRAs, 401ks Roth 401ks. Can you have a 401k? Can you have an Roth IRA, how do you do a rollover? How many transfers can you do a year? Can you do this, can you do that? So today's ask Suze Anything is totally dedicated to retirement accounts and I don't blame you. I don't blame you. If you look at the economy. If you look at Social Security and you look at when it's scheduled to run out, what's going on with Medicare, you have to take care of yourselves. If you are counting on the government to take care of you when you get older, if you are counting on getting an inheritance from your parents, maybe yes, maybe no. But if you are counting on anybody else besides yourself to make sure that you are okay when you get older, then you're not being a strong, smart and secure woman. You're being somebody who is depending on somebody and something else. And whenever you are dependent on anybody or anything other than you, that creates insecurity. So the whole goal of the Women & Money podcast, in order to make you secure, you have got to be knowledgeable. You have got to know about your money. You have got to know about the decisions that have been made with your money. You've got to know about it all because one day it's going to be in your hands most likely. And the reason I say that is, you know, and I know that actuarially speaking women live longer than men. I use the example of my father and my mother all the time. My dad died when he was 71, my mother was only 66 at the time that he died, and she lived 31 more years. So she had to learn about money. But in my mother's case, she actually didn't have to really learn about money because they really didn't have any. So she had to learn, really, about how was she going to make it? What was she going to do? Well she figured it out. She gave birth to me that kind of solved her problem. But you haven't given birth to me. You don't have me in your family, maybe you have kids but you don't want to have to rely on your kids, taking care of you, you want to be independent, so let's get involved with your money right here, and right now. First email is from Kayla, she says Hi Suze, I'm 33 years old. And listening to your podcast has inspired me to contribute more to my retirement. Kayla that is the goal. To be inspired, to be moved, to really get some energy under you because money can be so boring. Money can be so dry. God forbid you should talk about money and be passionate about it and have an emotion about it and talk about it in the way in the tone that I'm talking to you right now about it. It's always so dry, so boring, so one dimensional, so black, so white. But money is really multi-dimensional, multicolored, it's fabulous. And Kayla goes on and says, I currently have a 401k that I would like to start contributing more to. And I'm very interested in opening a Roth IRA, but I keep hearing about a market crash and a recession coming up in the near future. I'm scared to do anything with my money other than keeping it safe in a savings account. Is it smart to invest right now, or should I wait until after the market crashes? Also, how badly will my 401k be affected by the next recession? Alright Kayla, let's talk about this. You are 33 years of age. Why in the world would you only want to invest if the market keeps going up and up and up and up? And this is an example that I use most of the time, you go into a store, and you see this purse that you love. And it is $100. And you say to yourself, you know what, I'm gonna wait because I hear in one year from now that purse is gonna be worth $200, and I'm gonna buy it then. That's not what you would do. What you would want to do is you would hopefully see that purse that you love, and you would hear, oh the market's going to crash on purses and in a little bit of time that purse is going to be on sale for $50. I'm gonna wait and buy it then. The same is true with the stock market. If you can just use the technique that I keep telling you to use, dollar cost averaging, which is exactly what you do in a 401K. Every single pay period. Your employer takes a specific sum of money out of your paycheck, and deposits it into your retirement account to which you have directed them to purchase some mutual fund or stock with it. When the stock market goes up, the prices of the shares of the mutual fund or stock that you are purchasing most likely are also increasing. So your dollars are buying less shares. You are buying things when they are more expensive. When the market goes down, the prices of what you are buying also usually decrease, so your dollars are buying more shares. Since there is no way to know, is the market going to crash? Is it going to go up? When is it going to do this? When is it going to do that? If you just use dollar cost averaging at this point in time, because this is the time you want to use dollar cost averaging when the markets are so high. If we were back in 2009 and you were asking this question, I would tell you no, no, no invest in one lump sum. If you have a lot of money, just invest it all at once. But when the markets are high and you don't know what they're going to do, not only should you be dollar cost averaging, but you should be wishing and praying and a hoping that the markets go down. You are 33 years of age! You're not gonna need this money or use this money for at least another 30 or 40 years. So why not have the markets go down? You want a market crash! You want it so that as it keeps going down, you're buying more and more and more shares of a good quality of the investment. And then when the markets eventually turn around, you'll make more money. And then they'll crash again, and then you'll make more money. So no, don't keep your money in a savings account, girlfriend. Put your money in good, no-load mutual funds like index funds. Do you have that? Right? The next one is from Janeece. I think that's how you pronounce your name. Anyway. Hi Suze. I've recently started to funnel all my retirement savings towards my Roth accounts. I have a Roth 401k at work and contribute more than enough to get my company match. My question to you is, do I have to pay taxes on the portion of the money that my employer contributes? Thanks. You betcha you do. When you have a Roth 401K at work and your employer matches a percentage of your contribution that you put in, their match goes into a traditional 401k. A pre-tax 401k. So that in the end when you go to take money out, not while it's sitting there, but when you go to take it out, you are going to owe ordinary income taxes on that money. Next question is from Krissy. She says, dear Suze, I am a 48 year old female who contributes the maximum to my Fidelity Roth IRA every year. I recently began investing in the Fidelity Zero mutual funds. Good I love those mutual funds. And I would like to know if you think CDs or bonds are safer investments to round out my portfolio. Thank you for your guidance. Girlfriend, you are 48 years of age! Continue to invest in the market. We're looking at at least 20 years or longer till you need this money. If you needed this money to be safe and sound, safe and sound why? Because here you are you're 70 years of age and you're gonna start generating income from it. And you need all the money to be safe to generate income so you can live on it, that's another thing. Or whatever it may be. You need this money to pay off the mortgage on your home. You need this money to do something with within a five-year period of time or shorter, then no you don't want that to be in the stock market. But you're 48 years old. Do not. And I repeat. Do not put it in CDs or bonds. Sure it's a safer investment. But is it a wiser one? No way. My next question is from Ashleigh. Hi Suze. I started a Roth IRA in my twenties because I was self-employed. Now I'm 32 years old and I have about $16,000 in my Roth. And I'm looking to work for a company which will offer me a 401k. That's interesting. Anyway, I'll get back to that in a second. I don't want to lose all the years of compounding interest, if I stop paying into the Roth and start fresh with the 401k. Can I roll a Roth IRA into a 401k, or what would you suggest so I make the most out of the money I already have? Ashleigh a few things. Number one I get that you're looking to work for a company which will offer me a 401k. I don't know, I would be looking to work for a company that was going to be paying me a whole lot of money as a salary, possibly offering me a 401k where they match my contribution, and everything like that but I would really want to work for a company that I loved working for. Just saying, alright. However, you say that you don't want to lose all the years of compounding interest if I stopped paying into the Roth. When you stop paying into the Roth, your money that is in the Roth the $16,000 is still making money. If it's earning interest because you have it in a CD or a money market account or something like that, and that interest will continue to earn. So you're compounding will continue, will it grow as fast as it would have if you continue to put money into it? No, but it will still continue to grow. I want you to do the following. I want you to keep your Roth IRA. If you find that you are hired by a company that offers you a 401k, hopefully they offer you a Roth 401k, and what would be great, is if you maxed out on both. All right, this next one is from a Jackelyn. I am age 59 and a single woman, currently taking advantage of my 401k with my employer that adds a 3% contribution. My annual pay is 120,000. I am currently contributing the max. Good on you, girlfriend. Hopefully that 401k is a Roth 401k. If it's not, by the way, you might want to look into your new contributions going into that. But anyway, here you go on and you ask, I hear you talking about dropping the 401k program with your company and getting into a Roth IRA. before I even go on with the rest of your email, you have never heard me talk about dropping a 401k program with your company to get into a Roth IRA. You hear me saying if your 401k At work does not match, if they do not offer a Roth 401k, then you are better off opening up your own Roth IRA then putting money into a 401k plan where you work that does not match especially if they don't offer a Roth 401k. So just let's get that straight. So the question is, do I have to drop the 401k program first? Are you crazy? No you don't. You absolutely don't. You should continue to have your 401k. And then do what? Open up a Roth IRA. So you can all have a 401k or you can have a Roth 401k. And you can have a Roth IRA. If you qualify for income it wise, or a traditional IRA so you can have two retirement accounts working for you at the same time. Next one is from Letty. She says, hi Suze. I have five 401k plans. Five. she says she has five. That are still with my prior employers and that I have not rolled over. Can I roll over all my plans at the same time to an IRA rollover account without incurring any tax implications? Alright let me this is where it can become just a little bit confusing. The law after 2015 states you can only do one IRA roll over a year in order to not pay taxes, but here's what you have to understand. If you do a custodian-to-custodian transfer, you go into a brokerage firm, you go into Fidelity, you go into TD Ameritrade, you go into Charles Schwab, you go into E-Trade, whichever one you go into. And you open up an IRA rollover account. And they contact each one of your past employers. All five of them. To do a custodian to custodian transfer. Listen to that word transfer. And the money goes directly from your old employer, directly into your account at the discount brokerage firm or brokerage firm wherever you do it, then you can do all five at once if you want. And not be penalized for it. A roll over, the technical definition of a roll over, is when you take money out of one of your ex-employer's accounts, and they give you a check. And now you have 60 days from the date of that check to get that money in to your IRA rollover account. That is technically a rollover. They will only allow you to do that once a year. And that is it. But you can avoid that, and you should never do it that way. Because of the 20% withholding tax that I've talked about on a previous podcast. The only way that you should do it is a custodian-to-custodian transfer. You never touch the money or get a check, and then you are not restricted to just one time a year. Alright, are you up for just one more? Can you take it for just one more? Now a lot of these questions, I want, I just want to say this. A lot of these questions, and I don't mean this to be insulting but a lot of these questions are very simplistic in nature but very complex. And they're complex because it shows the lack of understanding for this topic about Roth IRAs, IRA rollovers, can you have this, can you have that? So it is important that we go over this over and over and over again until you know it without a shadow of a doubt. You know I was on Google the other day, and I was looking up because it just I just sometimes like to see is the information that you get on Google. Is that information absolutely correct all the time. And I was looking up Roth IRAs, and when can you take money out? And so many times I was reading things that I know are 100% wrong. Like I'll never forget the time that I did a PBS special. Which I'm doing again by the way for 2020 will be my 9th PBS special. It will be out March 2020. And I said on there if you have a Roth IRA you can take money out, any money that you originally contributed without taxes or penalties regardless of age or how long the money has been in that account. Well the number of people that called in to PBS, CPAS, enrolled agents, all tax lawyers saying Suze Orman is 100% wrong. You cannot touch money that is in a Roth IRA unless the account has been open for at least five years, and or 59 a half and on, and on, and on, and I was just like are you kidding me? Are you just kidding me? You are also wrong and they were wrong. PBS had a fit because they're like, is that possible? We have a PBS special with incorrect information on it. No they did not. But so many times the information that you get is wrong. So you have to really not just listen to me, you have to make sure that you know if you get information from other people that confuse you, can you just really make sure? Can you check it, recheck it? Be crystal clear that you are understanding everything that you need to understand and the way things work, which is why I go over this, and over this and over this. You know when I was doing my TV show people,e would always say to me Suze, don't you get tired of answering the same question over and over again? And I would always say no! Because every one of these questions is so important to you because if you make a mistake, if you don't take advantage of everything that you can take advantage of. Then you don't make the most out of your money. And what a shame. So no I don't mind doing this over and over again and you shouldn’t mind listening to it over and over again. This one is from Lynn, last one here. Hi Suze, thank you for all the great information over the years. So you are so welcome Lynn. Lynn. Do you know that's my middle name? Anyway, here is my question. I have a living revocable trust. Good on you, girlfriend. I also have a large 401k that will eventually become an IRA. I am single but I have one child, and I have made my son the beneficiary of my 401K. My trust is the contingent beneficiary. The reason I did that is because I do not want to create a massive taxable event for my son when I die. I want him to be able to stretch the IRA withdrawals. I inherited a small IRA from my father, and I'm doing just that. My understanding is that since a trust is not an individual, stretching it is not possible. In a recent podcast, you expressly said not to do that. Am I doing the right thing? Alright let's get this straight. What I said, was that if you are married, your spouse should be the primary beneficiary of an IRA, or a 401k, or a 403b, or a TSP. And your trust should be the contingent beneficiary. And I said that for two reasons. Number one, your spouse usually has rights where they can take over your IRA, take over your 401k as if it was their own. And many trust do not do that. Now obviously you know that I've created my own must have documents, a trust lawyer created them. And that they're out there. That particular trust allows you, if you made the trust the primary beneficiary, if you were married, it would be fine because the wording of how that trust works allows your spouse to take it over as their own. Allows your children, or anybody to do stretch withdrawals. And for those of you who don't know what a stretch withdrawal is, it's simply when you inherit an IRA or 401k, and let's just say you're a child. You have only five years, in most cases, to wipe that retirement account clean. Or based on your age, you can stretch it over your life expectancy. A period of time. So you only can take out little amounts of money. Why would you want to do that? So that you're not hit with a very big tax burden, if there's a lot of money in that account. And Lynn was saying that she has a large 401k. So she's trying to protect her child. But Lynn, what you're not understanding is that even though you make your child the beneficiary of that 401K plan or the IRA, they have the right to take out as much money as they want anytime that they want. And normally when a kid sees a large sum of money coming their way, do you think they think about the tax implications? Or do you think if you have not educated them, that oh I'm just gonna leave it there. I'm not gonna touch any of this, very little of it for the next 20, 30, 40 years. I don't think so. So in a trust, if the trust is worded correctly, then the trust could dictate how much the kid could actually take out, just so you know. So I would do a little bit more research on this if I were you. All right. Have you learned more about Roth IRAs and 401ks, and rollovers, and stretches and trust, and everything that we just talked about? I hope so. And I hope that you are enjoying this podcast because a lot goes into this podcast, a lot of emotion. A lot of information but more than anything, a lot of intent. My intention for you for you that are listening is that you honest to God become the strong, smart and secure women that I want you to be. Because I know what it's like when you don't have power over your money. And when your money has power over you. So let's turn that around, and come back every single week. Tell every single woman you know, and every man who is smart enough to listen to the Women & Money podcast.
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