Podcast Episode - Ask Suze & KT Anything: All About Retirement Accounts

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On this episode of Ask Suze & KT Anything, Suze answers your questions about rolling pensions into Roths, rolling 403(B)s into Roths, matching funds, investing in AI and more!

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Podcast Transcript:

00:00:41

Suze: February 16th, 2023 guess who's sitting right next to me?

00:00:48

KT: Me, KT.

00:00:50

Suze: KT is right here.

00:00:53

KT: Did you have fun last night?

00:00:55

Suze: Oh my God, those people are crazy

00:00:57

KT: Right? We were in Margaritaville, everybody

00:01:00

Suze: So as you know, Jimmy Buffett is a friend of ours and he invited us to come see him in concert.

00:01:07

KT: Our first Iimmy live concert. Actually, off the charts, Margaritaville, baby. Right.

00:01:16

Suze: Everybody knew every word to every one of his songs, except for us.

00:01:22

KT: So we just smiled and kind of mouthed it.

00:01:27

Suze: But I have to tell you fabulous concert, you should all go try to see him if you can. But KT, what is today?

00:01:35

KT: The 16th?

00:01:37

Suze: Yes, but it's Ask..

00:01:39

KT: Oh, it's Ask Suze and KT... Ask... KT is going to ask Suze everything you want to know day.

00:01:48

Suze: It's Thursday. Ask Suze and KT anything. Yeah, we're still in Florida. And we go back to the island this afternoon actually, when we're done with this podcast and here's the good news, everybody. This is why you tune in to the women and money podcast and everybody's smart enough to listen.

00:02:06

Suze: KT is so excited to go back to Florida because why?

00:02:10

KT: My garden doesn't have grubs. Oh well, Colo And I have been keeping an eye on it. So we don't get grub worms. But I'm most excited to see how much everything grew. And to plant more spring plants.

00:02:23

Suze: Because everything she's tried to plant since we put in the garden.

00:02:28

KT: The grubs... we had a grub worm infestation and it's very difficult but it's also my Aunt Arlene's birthday today. It's a nice day. Arlene. Happy, happy birthday. We love you. We miss you. I know it's cold up in New Jersey but we'll get you down here soon enough.

00:02:47

Suze: All right sweetheart, are you ready to start ready? Ok? Are you sure? Are you recovered from last night?

00:02:55

KT: No (laughs) first question is from Teresa. Hi Suze and KT. Thanks for your wisdom and banter. Should we banter. I am 62, a recently retired. R. N.

00:03:12

KT: And congratulations. We love nurses and doctors but nurses and teachers are Suze's favorite. So she said I have an IRA and Roth IRA. Current value is 1.4 million. I have no debt and no dependence. My question is regarding my pension. Should I take it as a lump sum? Roll over into my IRA or as a monthly fixed income?

00:03:42

KT: The lump sum amount is 150,000. The monthly payment option would be approximately 800 - 800 dollars a month. I have gone back and forth on the two scenarios. I appreciate your input. Thank you.

00:04:00

Suze: This one is actually easy, my dear Theresa. I would do the IRA Rollover. And the reason is this:

00:04:09

Suze: If you take the pension they give you $800 a month. Times 800 by 12, that's $9600 a year. If you divide $9600 by the total amount of your pension which is $150,000. That gives you a 6.4% return on your money.

00:04:32

Suze: The problem is, you die in four weeks, four months, four years. All that money, all 150,000, whatever is left of it is gone. What a waste. If however you did a roll over

00:04:48

Suze: and you took all of that money and let's just say you put it into a six month T bill right now and eventually be able to lock it up long term at 5%.

00:04:58

Suze: That's $7500 a year or $625 a month. But you also have access to that money if you need it. And on your death you have the ability depending how long you live to leave, whatever's left in there to some charity. So for a measly $175 a month that would be taxable to you.

00:05:24

Suze: Plus you have all of that money. The $1.4 million besides this, you don't need the $800 a month income and the ability to lose the $150,000 when you die. Just do the IRA rollover.

00:05:40

Suze: Okay. Does my voice sound really deep today?

00:05:42

KT: But both of us have a little frog because we're screaming...

00:05:47

Suze: Jimmy, Jimmy. Look at me! Jimmy Jimmy.

00:05:50

KT: We just kept screaming and applauding and going, yeah baby. Okay, so this is from Nancy. Hi Suze. On your podcast, you talked about inheriting a parent's home.

00:06:02

KT: I'm going to inherit my mother's home when she passes. However, her boyfriend who's 92 has living rights to stay in the home, we're not looking to move in with him. My question is when he passes, if we make the home our primary residence for two years, will we still be eligible for the 250,000 tax exempt

00:06:26

KT: when we sell it after our two years of living there?

00:06:30

Suze: Yeah, listen to me. Yeah. Yes you would be. But Nancy. You don't have to do that.

00:06:36

Suze: If your mother dies then that person, her boyfriend, is living in that home. Alright when he dies you get a step up in cost basis as to whatever that house is valued at when he dies. Or even if he dies before your mother, when your mother dies, you again get a step up in cost basis. So if the property is worth $5 million.

00:07:05

Suze: You can just turn around and sell it for $5 million and you don't pay any capital gains tax. So, you don't have to worry about living in it for two out of the past five years to get a $250,000 exemption.

00:07:19

Suze: Because if you're gonna sell it, you don't even need to do that if however you want to take it on as your primary residency and live in it and you live in it for a long time then yes, you will get the $250,000 exemption per person.

00:07:36

KT: Oh yeah, I always forget it's per person. Okay. Next is from Jonathan.

00:07:42

Suze: Can you imagine having a boyfriend or a girlfriend at 92?

00:07:45

KT: Why not?

00:07:46

Suze: You're supposed to say yes, Suze. I can imagine having you as my wife until I'm 102. Alright.

00:07:54

KT: I was going to say, why not? 92 is not that old? The new 40.

00:07:59

Suze: Yeah, we're the new twenties. Have you noticed?

00:08:01

KT: Yea, 72 is the new 40 baby? Okay. Next question is from Jonathan. Hi Suze and KT.

00:08:06

Suze: I just have to say something.

00:08:08

Suze: So here we are, Valentine's Day. Now we're going back a few more days and I take KT out to lunch and on the way home we have our top down and we have a convertible, everybody and I put on a fabulous music. It was Flowers by Miley Cyrus...

00:08:28

KT: And I love that song And Suze was really grumpy. She's next to me and she starts dancing in her seat.

00:08:34

KT: So I'm driving and I'm on a very safe, slow road going like 32 miles an hour along the ocean. Very very nice. Sun's shining. I started dancing and jiggling a little. She got so mad at me and said  KT put your hands on the wheel, You know, I don't like that. And I was like, okay, there goes that fun adventure.

00:09:00

KT: Okay, ready? Next question's from Jonathan. Hi, Suze and KT on a podcast, you talked about the Secure 2.0 Act pertaining to Roth four oh one. No longer having RMDs I didn't know that. I'm 37..

00:09:19

Suze: Is it because you didn't listen to that podcast?

00:09:21

KT: I didn't know that it was, it's effective right now. 2023 I am 37. I have a Roth 401k at a previous employer that I never rolled over. Currently I have a Roth IRA through Vanguard for the last three years. Should I leave the Roth 401(k) as it

00:09:41

KT: it is or roll it into my Vanguard Roth? Does it make any difference aside from having more investment options?

00:09:49

Suze: No difference at all boyfriend. But if I were you at 37 you want as many options as you can have. So therefore absolutely roll it over.

00:10:00

KT: (sings) Roll over Beethoven... Do you remember that song?

00:10:07

Suze: Will you just ask me questions.

00:10:08

KT: Okay. Next is from Siri. Hi, I have a...

00:10:13

Suze: Oh a little Apple Siri from the Siri?

00:10:16

KT: Oh, Siri. No, this is from Siri, Siri. Hi, I have a 403(b) through work that I've been contributing pretax amounts to for 23 years. Good for you Siri?

00:10:29

KT: There is also a Roth option. Is it advisable to put my contributions in the Roth instead? Even though I'll be leaving in two years and there's a five year requirement before gains can be withdrawn without penalty. The five year rule, she's good. I'm 67 a half years old.

00:10:50

Suze: Actually you have that wrong, my dear Siri

00:10:54

Suze: in that, once you turn 59 a half, you're no longer subjected to a 10% penalty regardless of how long your money has been in a Roth IRA or Roth 401(k). It is the income tax on that money

00:11:13

Suze: that you will have to pay if it hasn't been in there for at least five years. So what I would be doing if I were you and everybody, I've told you to do this, open up a Roth IRA at some discount brokerage firm right now put $5 in it, $10 it doesn't matter and start the five year clock ticking.

00:11:36

Suze: So if you've only had a Roth 401(k), then for 2.5 years or whatever it may be when you roll it over into a Roth IRA that you've had open for five years, it automatically has met the five year time limit for taxation on earnings.

00:11:58

Suze: Therefore, given the fact that if you didn't do that and you left it in a traditional 401(k).

00:12:07

Suze: when you roll it over and you take out the money anyway, it's totally taxable to you. So why not do the raw 401(k). Start a Roth IRA now,

00:12:21

Suze: once you retire you will absolutely just convert it over, roll it over into your Roth IRA and let it sit there for three years to simply avoid the taxation on the earnings.

00:12:35

Suze: But here's the good news. Most of it really in two years will probably be just your contributions and there will be no taxation on your contributions at all.

00:12:45

KT: That's good news. So this is from Barbara. My husband's employer has a retirement account with matching funds. But when reviewing th

00:12:55

KT: information, I saw that the sales commission ready for this Suze? 5.75% on top of an expense ratio of 0.74%. I was shocked. And now she's asking you Suze, do you think this is high or is it the average for account management?

00:13:24

Suze: I think it's highway robbery. So when you paid a load and that's called a sales load of 5.75%. 5 and 3/4% of whatever amount that he has been investing goes directly to the salesperson to pay his or her commission.

00:13:48

Suze: That means your fund has to increase in value five and three quarters percent just for you to break even and on top of that right there's an expense ratio in there. Now the expense ratio isn't that big. But the fact that they're charging five and three quarters percent in a retirement account.

00:14:12

Suze: Your husband's employer really needs to change their company that they're dealing with. It's just nobody should have to pay a commission to buy a mutual fund within a retirement account at an employer's.

00:14:27

KT: That's crazy. 5.75.

00:14:30

Suze: That's the difference between loaded funds and no loaded funds. And remember I always told you that when I first started in this business back in 1980, there were only 300 mutual funds and the only way that you could buy them would be through a broker like me. And the commission was five and a quarter five and three quarters percent, which is what we got. Then as time went on and discount brokers started to happen,

00:14:59

Suze: everybody came out with no load mutual funds which means you can buy it for no fees at all and sell it for no fees. So you really have to know what kind of fund do you have? You do not want to have a fund that has the letter A or B. After the name of the fund.

00:15:21

KT: When I first met you, I don't know if you remember this When I first met Suze, you know I was in san Francisco and I had open accounts and funds and investments I think at Wells Fargo. And I remember and I didn't know anything I said to Suze, I have these investments and funds. She said is there A or B. I said yeah, both of them A and B. And she said always remember

00:15:48

KT: if it has A behind it, it means it's going to bite you in the...

00:15:52

KT: and if it has a B behind you is going to bite you in the butt. And I always remembered that if it's at A or B, don't let it bite you baby.

00:16:02

Suze: Don't ever do A or B funds.

00:16:05

KT: Okay. So next is from Dion. Dion said hello Suze. I have made an absolute mess with my finances. I'm 54 years old. I have no savings and have 179,000 in an IRA.

00:16:22

Suze: How old?

00:16:23

KT: She's only 54.

00:16:27

Suze: She has more than most.

00:16:28

KT: She's taking care of her family since she was 20. She is in a pretty amazing woman. She raised all her kids and her sister's kids. My job had an early out and I couldn't afford to retire. I have two years and eight months before I can retire without penalty.

00:16:46

KT: My current home requires some renovations. My home is worth about 680,000 as it is. I'm trying to figure out whether to sell or renovate or downsize and maybe use the money from the sale of my home to buy outright for cash. A new home, a smaller home. My current take home is $6,000 monthly and I'm $35,000 in debt. Please help, I need advice and direction.

00:17:20

Suze: Pop quizzie...

00:17:21

KT: Oh, Okay. Alright. Go for it.

00:17:24

Suze: Everybody because this is such a great question. Should Dion sell her home, she has $35,000 in debt. She takes home $6,000 a month. But she still $35,000 in debt. She has a home worth $680,000 as it is. But she doesn't quite say

00:17:46

Suze: how much more money she owes. That isn't. But she's always taking care of everybody else, right? She hasn't been able to take care of herself. She feels like she has nothing. She's an absolute mess. Although $179,000 in an IRA and a home worth $680,000, Dion is not an absolute mess. Let me just tell you that an absolute mess. I don't even have time to tell you what it is right now. But it's not that. Got it.

00:18:16

Suze: So what should Dion do? Should she sell her home or should she keep it?

00:18:24

KT: Okay. Want me to answer. Yeah definitely sell it and downsize, sell it downsized now. Downsizing doesn't necessarily mean, Suze that she has to buy a smaller home. She can also rent.

00:18:39

Suze: No at this point she she's still she's still young. She's 54... what I want you to do. First of all, KT ready? (Ding Ding Ding) So first of all

00:18:51

Suze: you have $35,000 in debt and it's the $35,000 in debt. That in my opinion is making you feel like an absolute mess. Now why do I feel that you spend a lot of that money on the kids that you raised everybody else and I don't know. You have these four kids and your sister's kids and they're now or all adults, can't they help you out with anything? Just a thought. But anyway,

00:19:19

Suze: I think your debt is what's making you feel like an absolute mess. Therefore let's sell the home, let's downsize, buy the new home outright. So don't buy a home that you can't pay for outright because I want you in a position where you do not have a mortgage anymore. Then every single month that you no longer have a mortgage, I want you to take that money and I want you to dollar cost average into

00:19:49

Suze: a retirement account. Whether it's a Roth IRA or a traditional IRA or your Roth IRAs or your Roth 401(k)s where you work. Start dollar cost averaging into these markets, whether it's a Standard and Poor's 500 index or whatever. Just keep

00:20:07

Suze: keep doing that and you watch how your money will grow. You can also put it into the IRA that you currently have.

00:20:15

KT: Okay, she's not a mess.

00:20:19

Suze: Honey, I can tell you is people who are a mess. Read that one email. Actually. We got an email from somebody and we're not making fun of it and putting it down.

00:20:31

Suze: But they said I'm, they claimed bankruptcy they had and they said I'm an absolute mess. And I went you are you are and there's nothing I can do to help. All right,

00:20:41

KT: Okay. This is from Jon you're gonna like this question. Hey girls, hey!

00:20:48

KT: He really wrote that everyone. Hey girls, hey! Seems that artificial intelligence is all everyone's talking about when it comes to technology of the future. Suze, what ETFs E or stocks would you recommend for AI? I thank you so much for your help. I've been a loyal watcher and listener for over 20 years. And because of you, Suze, I've done quite well with saving and investing.

00:21:18

KT: My friends often ask me financial questions and I will always reply, well my girl, Suze would tell you... Okay, So isn't that sweet? So what would he, what would you do with your artificial intelligence?

00:21:35

Suze: The one stock that I would buy

00:21:37

Suze: if you wanted to be exposed to artificial intelligence with the ChatGpt would be Microsoft. They invested a fortune and own a good portion of that company. That's probably how I would do it. I myself did it, KT don't know if you know this, but just the other day, I invested in a fund that just does artificial intelligence. But it's a private fund.

00:22:04

Suze: I'm telling you that because it's an area that I absolutely believe in. They don't have any ETFs or anything out there at this point that I love, but I love Microsoft. You might want to try doing it that way.

00:22:17

KT: Suze, the next question and my final question is from Antoinette and it's about Social Security.

00:22:25

KT: She said according to her numbers she would make $1,159 more and work less, if I take my social security at 62. Furthermore I did the break even analysis of drawing my social security at 62 versus 6

00:22:46

KT: and I would be approximately 78 years old when the dollar amount breaks even. Okay so Suze, in your opinion what should I do?

00:22:55

Suze: That was short. Alright so that's easy Antoinette do not take your Social security at 62. Just don't do it. You think that oh my God 78, I'm gonna have to wait till I'm 78, just to break even.

00:23:11

Suze: The problem is you most likely are going to be 78. I'm going to be six years away from 78 shortly here. Are you kidding me? So chances are you're gonna live to 88 possibly 98 and then all of those years beyond 78 really will count and you'll need that extra money then. So if I were you I wouldn't even take it at 67, I would wait and I would take it till 70.

00:23:41

Suze: Because every year from 67 to 70 it increases by 8% a year plus the cost of living adjustments with CPI, which is inflation.

00:23:53

Suze: So I know you can figure all this out. I know you think that you can make more by working less right now. That's not what I want you to do? I want you to work more and more and more right now in your sixties is still really young. I want you to work less and worry less when you're in your seventies, when you're in your eighties and hopefully nineties or later. So no, do not take it at 62 period.

00:24:21

Suze: So I do have another quizzie though just for you and all of you by the way, if you want us to answer your questions on the women and money podcast, just send in your question to ask Suze podcast at gmail dot com. And if KT chooses that, she only chooses short ones, just know it , then we will answer it on this podcast.

00:24:49

Suze: Right? But KT, as everybody knows quizzie time is where I ask you a question. But the question isn't just for you it's for everybody as well. And on Valentine's Day...

00:25:02

KT: Oh, here we go.

00:25:04

Suze: Right, I posted on the Women and Money app that all of you should be downloading because I post videos and pictures there that I don't do other places.

00:25:15

Suze: And you gave me a little picture in this beautiful silver frame for Valentine's Day, where you drew in the sand a heart and you put the initials U. W. D. and I posted that and everybody has been trying to figure out what does U.W.D. mean.

00:25:42

KT: Well, I'll tell you all.  You're gonna have to wait.

00:25:44

Suze: Are you really not going to tell them?

00:25:45

KT: No. U.W.D. Suze knows clearly what that means. It's a very very special abbreviation.

00:25:55

Suze: Do you know, everybody guessed Until We Die, Until We Dance. That's not correct by the way.

00:26:00

KT: That's not correct. But it's a nice one. It's a nice thought. But guess what everyone? You might have to wait until we die before I give it up.

00:26:09

Suze: You're never going to tell anybody?

00:26:11

KT: No. That is my answer. That is my very secret and very special initials for Suze and she knows exactly what that means.

00:26:21

Suze: You know who else knows? Your sister, Lynn

00:26:24

KT: Oh don't go getting Lynn involved. Lynn can't keep a secret. Don't go to people don't contact my sister.

00:26:32

Suze: Anyway, sorry about that. Everybody it was up to KT if she wanted to tell you what it meant or not.

00:26:40

Suze: Okay, KT, that's a wrap. So the one thing we always want you always to remember is this don't you ever let anybody stop you from doing that what you want to do. And don't you ever stop yourself from doing it as well. Because why? You are unstoppable. Bye bye everybody.

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