Podcast Episode - Ask Suze & KT Anything: Diversification, The 5 Year Rule and IRMAA

Home Buying, Home Loans, Home Mortgage, Investing, IRA, Mortgage, Podcast, Roth, Roth IRA, Student Loans

September 15, 2022

Listen to Podcast Episode:

On this episode of Ask Suze & KT Anything, Suze answers questions from you all about a retirement withdrawal strategy, tax savings in a trust, just what IRMAA is and more.

Podcast Transcript:


Suze: September 15th, 2000 and what year KT?


KT: 22!


Suze: Is it gonna be a good year?


KT: It is a good year.


Suze: KT this year is almost over!


KT: But it's been, it's been a really good year.


Suze: You know the other day, by the way, welcome everybody to the Ask KT and


Suze: Suze


Suze: Anything podcast. The other day, KT and I watched Elvis, right, the movie and it shocked me. It absolutely shocked me


Suze: at least the way that this video presentation or movie presentation tells the story, how out of touch Elvis was with his money.


KT: And financially abused. He was taken advantage of left, right and


KT: center. So


KT: that part of it


KT: was kind of maybe that was the whole, you know the news that people didn't know about Elvis.


Suze: Yeah, it was it's just amazing and it always makes me think of Prince, and other people who were very wealthy, they died without a will, they died without a trust, they didn't have a clue of anything going on.


KT: One of whom you knew personally was who? Marlon Brando.


KT: Can you guys believe that


KT: Marlon Brando called Suze for financial help and she didn't believe it was him. Remember?


Suze: It took me a while to believe it and then it was, I did believe it. But just amazing. So I don't know what made me want to say that to all of you except that it made me so sad. So this entire podcast


Suze: is about making sure that you are secure, you are never financially abused, you know the answers to any question, and if you don't know the answer to the question, especially when it comes to your money you can come right here. Or watch the Suze Orman Show on Freevee.


KT: Alright.


Suze: You know what today is what KT?


KT: What's that?


Suze: Today is 23 days from today.


KT: Everyone you have to do it. I know what you're going to say, I know what you're... okay. You all have to participate in the Alliant checking account checking for good. I call it checking for good.


Suze: Do good.


KT: I did it.


Suze: She did it.


Suze: You have 23 days from today,


KT: 15th


Suze: and then this offer goes away.


KT: But tell them why we love it so much.


Suze: We love it because all you have to do is go to myalliant, A-L-L-I-A-N-T,.com/good. You go there and you open up


Suze: An online checking account, you deposit $100 and even if you have the Ultimate Opportunity Savings Account, that $100 can come from the Ultimate Opportunity Savings account by the way, and you deposit it into this account, and then just every month till the end of February 2023,


Suze: you do an electronic transfer from some account


Suze: outside of


Suze: Alliant, any amount $5, does not matter, at the end of February 2023, that is right around the corner everybody. Alliant credit union will give you $100,


Suze: and then right after you open up the account, about 2,3,4,5 days later you will get an email from Alliant, where you get to choose one of three charities and Alliant will send $100 to them as well.


Suze: So I got...


KT: I picked Alzheimer's for my grandma.


Suze: I know you told me that.


KT: So I I like this. This is one of the best promotions ever.


Suze: So it's Alzheimer's, Easter Seals, it's Cancer, cancer. So you choose which one of those three so you can do good for yourself and you can do good for others as well.


Suze: You know, you just need to do it. All right.


KT: It ends October seven so that's 23 days from now. Do it. Do it. Do it.


Suze: Alright let's go KT.


KT: Okay. Suze my first question. So I've tried everyone to make this more diversified with a different topic for every question. This this podcast. So the first one is from Cathy it said Suze. My question is regarding a withdrawal strategy in retirement.


KT: My husband and I have 401ks, IRAs, we also have a large amount of company stock. We only have one small Roth each. We also have a 5-to-7-year emergency fund.




KT: wish I had listened to your advice regarding Roths. If I had this question


KT: would not be needed.


KT: Here...


KT: is the question. My husband and I retired in 2018. We haven't taken anything out of our savings or retirement accounts because the pension and social security that he has has been enough. My husband


KT: will be approaching RMDs in five years.


Suze: and what is an RMD KT?


KT: Required minimum distributions. So they're both going to get this in five or he gets it in five years from now and she and a couple of years thereafter.


KT: We should be okay when my husband takes RMDs, but when I start to take the RMDs and Social security, is this going to put us over? IRMA. What the heck is that? I don't know.


Suze: I'll tell you all about this.


KT: I feel like...


Suze: Every one of us needs to think about this but I have to possibly pay it.


KT: I don't know what it is.


Suze: You're paying it now.


KT: I don't know what it is. So I want to know what the heck I'm paying. I feel I should have been drawing down our 401(k)s since 2018. I have five years to start doing this now. But the markets are down, help Suze and help KT know what an IRMA means.


Suze: So


Suze: as you get older you get to absolutely enjoy something as KT and I have been enjoying once you become 65 years of age, something called Medicare. And Medicare is Medicare A, Medicare B, and Medicare D. And Medicare B, and Medicare D is something that every one of us pays for KT.


Suze: Like that's why I was just showing KT the other day that she got a social security check right put into her account, and they had to subtract 500


KT: I think almost 600


Suze: dollars for her Medicare B part of it.


Suze: So the more money you make, the more you have to pay and IRMAA stands for income related monthly adjustment amount. How much they...


KT: Who came up with that name?  


Suze: The government!


KT: It's funny, they're so boring with their initials, descriptions.


Suze: I know IRMA, IRMA.


Suze: Irma is determined from your income tax returns from the two previous years. Don't ask me why Why they don't do it yearly is beyond me, but they look back two years, and depending on what your income is, two years ago, you either have to pay Irma or not.


Suze: So KT, for 2022, this only involves people who make over $91,000 a year if they're single, or $182,000 a year if they are married, filing jointly. So listen everybody. If you make under those amounts, this does not affect you at all. But if you make over those amounts, it can cost you big time


Suze: on what they are going to charge you for your Medicare B and D premiums. So for instance, it could be anywhere for part B, from $170 a month more, to $578 a month more.


Suze: So depending on your income, that amount varies. For part D, it will be anywhere from $12 a month more, to $80 a month more and that's on top of the premium that you are already paying.


Suze: So


Suze: Cathy. Here's what you need to understand. Obviously you said that in about five years your husband will have to take required minimum distributions. So that puts him at about 67 right now, you


Suze: are probably, you say a couple of years younger than him, right? So you're probably at 65, 66. Maybe you're gonna wait till 67 in a year or two to start your social security as well, but when both of you are on Medicare and obviously he is,


KT: when you


Suze: go to do a conversion, meaning you convert amounts of money from your taxable retirement accounts into a Roth retirement account, that counts towards income.


Suze: So you have to just be careful about how you do it. Because it's still going to cost you, you're going to have to pay taxes, and possibly that would put you in a place where you also have to pay more according to Irma. So if I were you, I would seriously sit down with a CPA. And really figure out what is the best strategy for you. However.


Suze: Everybody else listening to this,


Suze: the lesson that you have got to learn,


Suze: is you want retirement money in Roth retirement accounts. You want retirement money in a Roth 401k, a Roth 403B, A Roth TSP,


Suze: a Roth IRA. You want to stay away from traditional tax deductible retirement accounts. Because in the end,


Suze: if you are going to be somebody who earns over 90,000 a year or whatever the figure is, and trust me they could lower that figure if they want to everybody,


Suze: you're going to have to then participate in what is called Irma. And what does Irma stand for, KT?


KT: Oh my God. Income related, wait income related monthly adjustment amounts. Most boring title on earth.


Suze: She wrote it down. Good for her. Next.


KT: Okay this next one is from Brandy. And the only thing Brandy I wish you would have included is your age but it's a good question.


KT: Says hello Suze and KT, this is a basic question. I know that Suze recommends to have about 20 to 25 individual stocks, but how many ETFs or index funds should you have to be considered diversified? I'm just starting out, I invest $50 every two weeks. I have about $2,000 already invested.


KT: I was just wondering should I continue to buy more shares of the stocks I have, or should I keep buying different stocks? Thanks for helping. So Suze, this is a really sweet email, but I don't know how old Brandy is.


Suze: You know it's funny KT, because I was


Suze: going through the emails and somebody by the name of Jill wrote in, and said that a while ago, she had listened to you know me saying about Pioneer energy and all of those companies, should she just buy that, or how does she diversify? And how do you get 20 stocks? The reason why I have asked all of you


Suze:  normally if you don't have a lot of money, to invest in exchange traded funds, because that's how you get automatic diversification. The vanguard total stock market index ETF, you know, there's thousands of stocks within there. So in your question, you said how many ETFs or index funds should you have to be considered diversified? So you just need one ETF to be diversified.


Suze: If it's a Vanguard Total Stock Market index fund or one of those ones that are exactly like an index fund that has 500 to 1000 shares in it, whatever it may be, for those of you who are buying individual


KT: stocks,


Suze: maybe you want to participate in a few stocks that I mentioned. Do you just buy that stock or what do you do if you have an exchange traded fund already


Suze: and then you want to buy one or two shares of an energy stock. Okay, I don't have a problem with that. You're still diversified. But if you don't have any exchange traded funds and now you want to just buy individual stocks, the reason that I've always suggested that I wanted you to be with let's say with Fidelity or Schwab is because you could buy slices of stock.


Suze: So if you're going a dollar cost average, let's just say $50 every two weeks. So $100 a month. You could easily, within that month, and you want to buy 20 to 25 individual stocks, which I do want you to buy, all at once, you might want to put $3 in one, $5 in another, $4 in another. So that you have your diversification,


Suze: even though you have small amounts of money in each one. So I hope Brandy that answered your question. Next question, KT.


KT: Okay. Next question is from Charlene. Ready?


Suze: No.


KT: Help for a pie...


Suze: I told you she doesn't even listen to me. I said no, I wasn't ready.


KT: Okay, are you ready? 00:15:39

Suze: No.


KT: Why? Are you ready?


Suze: Because you need to listen to me.


KT: Okay, are you ready?


Suze: Yes.


KT: Okay, Charlene


KT: has a comment, help for a pilot is her subject. Hi, Suze and KT, my 21-year-old son is following his passion and is in training to be an airline pilot.


KT: He has a 48,000 private student loan, with an interest rate now at 8.82%


Suze: It may go higher.


KT: He works a second job in retail, picks up side work wherever he can, but still doesn't make enough money


KT: to cover his $600 plus monthly loan repayments. He lives away from home, pays his own rent, utilities, gas, insurance, food, etc, but there's not enough to make ends meet. Any advice on this type of loan?


KT: Is it possible to refinance to a lower interest rate or lower monthly repayment? He was trying to save some money for emergencies, but I told him it's better to pay whatever he has on that loan, and that we, meaning Mom and Dad, would be his emergency fund.


KT: Was this the right advice? Thank you so much for reading this. Since immigrating to the US 18 years ago, I've learned so much about personal finance from you, Suze, thank you. So Charlene. Suze's going to tell you, I I just love that he's following his passion. But man, it's a tough road.


Suze: Charlene. If your son has what it takes to be a pilot.


Suze: Do


Suze: you know how hard that is? Not everybody has what it takes to be a pilot.


Suze: He has what it takes to work himself out of this situation. So what do I mean by that? The answer to this is not about refinancing a loan, making lower payments. Finding a way to do that. Because you know if he refinances, right now interest rates are going to be any lower than they were when he originally did this, if he has to pay less on it, he's just going to be paying for longer and paying more interest.


Suze: So there's two things here.


Suze: Okay so he knows that the two of you, his mother and father, will be his emergency fund. But he also seems to have the luxury my love, of being able to live on his own pay his own, pay his own utilities, do everything like that. Seems to me that if he doesn't have enough money to make ends meet, he also doesn't have enough money to live by himself.


Suze: That means he needs to get a roommate. Maybe he needs to get two roommates. Maybe he needs to move to another cheaper place with other kids. Really.


Suze: Because that is how he will save money. He is 21 years of age. And given the rental markets today, and what it cost to rent, what it costs for everything else, no wonder he doesn't have any money for anything else. So my advice is not to figure out how to readjust his loan and all of that, although you can always look into that, not to make sure that he knows that mom and dad are his emergency fund, but it's to have a stern talk with him and say son,


Suze: here's the flight plan.


Suze: Right, for you to take off financially speaking, you're going to have to land in a place that you can afford, and living by yourself and everything else that you do,


Suze: you can't afford anymore. So therefore, you're going to have to figure that out, or you're gonna have to move home with mommy and daddy.


KT: Ouch. Next question is from Diane. And this is about Roth conversions near or in retirement. One of my favorite topics. Hi Suze and KT, it's me here with a question on one of your favorites. Roths.


KT: I hear it discussed often that some decide to convert traditional IRA funds to a Roth near or post retirement. I've heard of some recommending to do this slowly. Does this mean the pro rata rule does not apply in retirement? What about the five-year rule to access funds post conversion? Could you please explain this process again Suze?


KT: And whether the rules change in retirement. I would appreciate it very much, Diane.


Suze: No rules do not change in retirement, girlfriend. So the reason that you hear me anyway say you always convert slowly is because any amount of money that you convert is taxable in that year that you convert. And you don't want that amount of money that you convert to put you in a higher income tax bracket.


Suze: I mean we already answered in the very first question how you have to be very careful about money that you convert, because why? It's taxable, and then it might affect Irma, Irma is our new girlfriend.


KT: I never heard about that.


Suze: Irma is our new girlfriend. We have a new Irma in our life. All right. So you want to be careful about that. What you really need to do,


Suze: is you need to go back, and maybe go on the Women & Money app, and search podcast, and listen to the master class that I did on the five year rule, Roth conversions, because none of this is simple, but you want to really get it right. And I got it so right on that podcast. So go and look it up. I think I gave one or two, I even did a quizie on it,


Suze: like for all of you, and it's something that you should find and listen to.


KT: Okay, I need to have a list to tell people which ones to go back and listen to with the date, for some easy access. Especially on our Roth, that's our most frequently asked.


KT: We


KT: should do a frequent, most frequently asked questions or most frequent topics.


KT: I'll figure out something everybody.


KT: You should see the face Suze's giving me. I'll figure out something easy, like an index or a glossary.


KT: Um, ask Suze, did you know.


Suze: KT, that's why we have the Women & Money app that you can access by going to Google Play or Apple apps, then search Suze's podcast, click. Put in pro rata rule, five-year conversion, and up will come all the podcasts.


KT: Just put in Roth baby.


KT: Okay. This next comment is, hi KT and Suze. I've been a fan for over 20 years. You taught me so much, and helped me to have financial security with many mistakes along the way. Recently I bought your must have document program. How does it play the role in tax saving in a living revocable trust? Or does it not?


KT: Love you both.


Suze: That should have been your quizie.


KT: Want me to try to answer it?


KT: It doesn't pertain to tax saving.


Suze: Ding Ding Ding Ding Ding Ding. (KT: It pertains to other saving.) Ding Ding, Ding, Ding


Suze: Ding Ding, I'm so proud of you. But that's not your quzie because you knew the answer.


KT: I always knew the answer.


Suze: Not always. But anyway, here's the bottom line everybody. The Must Have Documents, the will, the living revocable trust, the advanced directive and durable power of attorney for healthcare, as well as the financial power of attorney,


Suze: the document that's being asked about is the living revocable trust.


Suze: Does that have anything to do with saving you money on taxes? It does not.


Suze: It saves you going through probate, it saves you in case of an incapacity, it saves you in case you have minor children having their money put in a blocked account, it saves you in so many ways. And again, I get that many of you just don't want to spend the money to get one. You still don't understand why you need them. Although if you watch the Suze Orman show on Freevee or now listen to past podcasts right here,


Suze: you would so understand it. One of the biggest mistakes you'll ever make is not having a living revocable trust. I promise you, that is true. So if you want one, simply go to SuzeOrman.com/offer, it is $99 for those of you here on the podcast. If you go to my website suzeorman.com, you will see


Suze: that it's $199. So it's a great deal. It's $2500 worth of state-of-the-art documents, good in all 50 states, you can share it with up to nine other people, and it's just they are so fabulous. I can't even tell you. Alright, KT.


KT: Okay Suze. I have one more question before quizzie time. This is from Alison. This is a real estate question.


KT: She said I adore you both both. I'm 39,


KT: and my question pertains to fixed mortgages. Is it better to put more money than 20% down on a house, or is it better to take that additional money and invest it in an ETF such as VTI instead? With mortgage rates at around 5% and growing, where are you financially hedging the best bet?


KT: Thousands saved an interest from having a smaller mortgage, or thousands earned from growth in the stock market? Suze, what's the smart money move? I think this would be a great quizzie.


Suze: Alright then answer!


KT: 39 years old...


Suze: Would you answer her?


KT: I would definitely go for the mortgage. (Suze makes the "wrong answer" sound)


KT: Why Suze? Is it because she's 39 and she should take advantage of time?


Suze: So the average person, KT, from the age of 39 till now, how many homes have you bought and sold or moved in and moved out of?


KT: Two or three.


Suze: At least. The average person keeps a home for seven years, and then they move.


KT: Ok then put your money in the market.


Suze: So Alison the point is at 39 if you're already putting 20% down so you don't have to pay PMI, which is private mortgage insurance, and let's say that you took out a 30 year fixed-rate mortgage. Let's just say that's true.


Suze: That brings you to 69. You know I want all of you to work till at least 70.


Suze: Probably longer as time goes on. So by the time you retire, then absolutely you will have paid off this home.


Suze: So the more you put down, the less interest deduction you are going to make. Because the mortgage companies know that most likely you will sell your home within seven years, they want all that interest upfront before you move. That's why your mortgage write offs are higher in the beginning portion of your mortgage than at the end.


Suze: So if you put more than 20% down, the value of the real estate goes up regardless. It's not gonna matter that way, and you're gonna lose out on interest deduction, and you're going to lose out on the possible growth of money. So I absolutely would not, at 39, put more money down. If you were 59, I would give you a different answer.


Suze: But KT, that then was your quizzie.


Suze: I'll have to keep the one I chose for you for a different time.


KT: What's that quizzie you had for me? Was it hard?


Suze: No.


KT: Alright I'll save it right.


Suze: I did it because you should have been able to answer easily.


KT: I really want to


KT: go for it and give it to me. Want me to do a quick one everybody? Let's do two quizzies.


Suze: Alright. Is it true that any Roth conversion you make after 65 can negatively impact how much you have to pay for Medicare premiums?


KT: I don't know.


Suze: Oh come on, I just


KT: Yes yes yes yes.


Suze: So there you go.


KT: There you go. That's a double quizzie and I got it right. She just gave us the answer.


Suze: And only if what KT? They make how much?


Suze: Over how much money per year?


Suze: Look at her face, look at her face!


Suze: Over $90,000 a year if they’re single,


Suze: and 2,000 or if they're married finally jointly, so it's not going to negatively affect all of you if you, if it doesn't push you past the $90,000 limit.


Suze: Alright so


KT: That’s two quizzies everyone, I like that. I'm proud of myself.


Suze: Good. Maybe I'll give you another one of three quizzies next time.


KT: No, no, no I get very nervous everyone when it's quizzie time. So I'm happy with with tackling two.


Suze: Alright everybody. 23 days left to do Alliant’s socially responsible checking account. Go to myalliant.com/good.


Suze: And obviously if you want to be part of the Ask Suze and KT Anything podcast, send in your questions to..


Suze: where do you know where they send them into KT?


KT: Women & Money podcast?


Suze: I'm gonna kill her... right to asksuzepodcast@gmail.com. She's not kidding, you know, she's not kidding. Or go to the Women & Money podcast app and do it.


Suze: All right everybody until Sunday, there's only one thing that we want you to remember. What is it KT?


KT: Stay safe, strong, and secure. And we'll throw in a smart for Suze.


Suze: Alright see you soon. Bye bye.

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