Podcast Episode - Ask KT & Suze Anything

Divorce, Home Mortgage, IRA, Retirement, Roth, Social Security

February 24, 2022

Listen to Podcast Episode:

On this podcast of Ask KT & Suze Anything, Suze answers questions from listeners about inheriting Roths, Series I Bond rates, Social Security and divorce, Elder care costs, home titles and more.

Podcast Transcript:

February 24th 2022. I know we're doing this podcast, but guess where I really am right now, everybody says a little prayer that Suze's surgery is great. She's actually, I mean, we're doing this podcast early in the morning on Wednesday, but it's you're listening to it on Thursday and right now Suze's in surgery. So, we'll let you all know how it goes. Yeah. How does it feel that I'm in surgery even though I'm sitting right here, what should we do? Tell everybody how it went on the podcast? I mean on the on the Women & Money app. Yeah, maybe we have to think about it. All right. Are you going to be afraid not at all? I feel great about this. I'm so happy we're doing it. She's been in such misery. Different than the last surgery. Huh? No, this one's easy. Easy peasy. No surgery is easy. But this one we kind of know what we're doing and it's pretty straightforward. She hopefully will not spend a night in the hospital. We want to keep Suze COVID safe and bring her right home and I'm going to spoil her like crazy. KT. You spoil me like crazy. Anyway, so welcome to another edition of Ask KT and Suze. Hey, I am suppose to say Suze. Ask KT and Suze Anything. And if you want to ask a question, everybody just write in to AskSuzePodcast@Gmail.com. And if KT chooses it, it will be answered on the air. All right. What do you get for me today? So, this is a follow up on that Roth Suze school. You ready? Dear KT and Suze, she still loves when longtime reader follower and now listener, this is from Erin said my parents are in their late eighties and are in declining health. They had traditional IRAs that I converted into Roth's recently for tax reasons. One at the end of 2021 the other in January 2022. My hope is that they continue to live their best lives and now the money will grow tax free and then she writes longevity runs in the family same as your family. Suze. Suze's family live forever. However, should one of them pass before the five-year rule takes effect, would that cause tax issues for me? Could I just leave it in the account for five years and then roll it into my Roth? I hate to consider this now, but I'd rather know what I'm facing should the worst happen. And that is from Erin. Here's what you need to understand upon death. When you take over these converted Roth’s, you can take out your contributions, the original contributions that were paid tax on by your parents at any time without taxes or penalties. It's the earnings on the inherited IRA that has to be in there for at least five years and you're five years will be up January 1st, 2025. In January 1, 2026. So, you just have to know the original amount that was converted. And if they die, remember if your dad dies, your mother will inherit this and treat it like her own because she's the spouse or vice versa. You can't do that because you're a child. So you have to strip this money clean over a specific period of time no matter what that since it's going to be tax free to you, it doesn't matter therefore what's really important for you to understand is that it has to be five years for the earnings not on the original amount that you converted for them. All right, okay. Next question is similar, slightly different. This is from Andy. My mom had a living revocable trust and died in 2017. In the trust. She stipulated that the home and the trust can continue to be occupied by her husband until his death. The property has increased significantly since 2017 when her husband passes. And I sell the home. Do I have to pay taxes on the appreciation since 2017 or from the time that I have control over the home so I can sell it. That should have been your quizzie. What do you think from the time that Andy has control over the home. So not 2017. No, because there's an occupant. It's her husband's in there. It's his responsibility. That's my girl. So everybody what you need to know is an Andy is that when you do what's called the life estate which you give somebody the right that while they're alive to live, let's say in your home, but you want to make sure that they can't sell it because you want your kids to get that home or somebody else then that's called a life estate. And the person that you leave it to after the death of the person who you're letting live in that house is called a remainder man. That's the technical name of it, remainder they get the remainder. I don't know why they call it that that's what they call it. Right? So what happens is when this goes on and he's going to receive a substantial tax break because if the house is sold right after this person dies then Andy's evaluation will be based on the value of the time of the life tenants death. So, Andy. Yeah that's good for you. So good for you boyfriend. Alright, Alright. Next question is from Danielle. My question is about the interest on a series I bonds as you suggested I bought some in November at 7.12% interest. Is this rate applicable for the life of these bonds? I understand that every six months the interest rate may change, I'm signing because I wanted you to stop right there. Right? This is a person. Sorry um Danielle who obviously did not listen closely to how I bonds work. I bonds are made up of two different parts, a fixed part that is good for the entire length of the bond which can be 30 years and currently that fixed part is 0%. The rate that changes every six months is the inflation rate. So, when you're currently getting the 7.1, 2% projected. No, it is not for the life of the bond. So, remember every May and November, they declare a new rate. If you bought a bond in June, then six months later when the original rate no longer applies the rate that they assigned in November will take over for you for another six months. So, it scares me when somebody says is this rate applicable for the life of the bond? No, it is not. All right go on. Well I think I think Danielle was just asking for clarification because I just clarified so she's smart. It says will the new interest rates starting in May affect the bonds I purchased in November going forward. Also, once the bond reached five years, can I continue to hold them for the same interest rate? See she didn't get. So, Suze just answered you Danielle. So, what you need to know is that over time and inflation starts to go down everybody with these series I bonds. Your rate that you get every year is going to be less and less and less. Hey, if inflation stays here or continues to go up then you will get more. However, if you think about it, if your money right now is in an account making 0.5%, you know, three quarters or whatever it may be, and you get 7.12% for one full year. That's more than you would have gotten holding money if interest rates stay low here for 5, 6, 7 years. So just one year of an I bond makes it far more lucrative than money in a savings account or an emergency account Making 0.5% interest. That makes sense to you, KT. So plus remember when it's in the I bond you do not pay taxes on it. It is tax deferred interest rate on a savings account is totally taxable. So, if you're in a high tax bracket, maybe you're getting a quarter of a percent after taxes. So, in the I bond, the interest rate is compounding everybody know I love them, and I start telling you about them before anybody else by the way. And but that is why you have to understand how I bond works. Next question, KT, this is from Lauren. I love this question. Ready? Hi Suze and KT. You helped someone on a recent podcast about some rules regarding the right to claim social security benefits on your ex-husband. I understand that if I have not remarried and our marriage was over 10 years, I can claim my question is if I receive Social Security benefits from him, does it have any impact on the benefits I'm entitled to under my own name is the rule that I get my full benefits plus half of my exes. Or is there some formula that limits the total allowance? That should have been your quizzie to KT. I don't know the answer to that. Everybody here's what you need to know. So as long as your marriage Lauren lasted for at least 10 years and you say it did, you must be 62 years of age or older to claim. Expounds cell benefits. Alright, divorce benefits and you cannot be currently married. However, listen closely if your ex-spouse has not applied for his or her Social Security benefits, then you will qualify if you have been divorced from him or her for two years. So that's important for you to understand. Also if you claim your spouse or ex spouse's benefits before your full retirement age, whenever that may be, all of you need to look it up then you will get a significant percentage less than what you're entitled to. So, if you claim at 60 to be careful because you won't get what you would have gotten if you waited two full retirement age. Now if your own Social security benefit is higher than your ex-spouses then you will get your own. If your ex-spouses are higher than yours, then the formula works. You get your own benefit plus the difference between your own benefit and what 50% of your ex-spouses would be. And that is your total benefit. You do not get your full benefit plus half of your ex spouse's benefit. You get the higher one or the other. But it's deemed that you've claimed your benefit and if your benefit is less, I'm going to say it again, then your ex spouse's benefit for you, then they'd give you the difference between your benefit and what your ex spouse's benefit would have been to give you your total benefit. That's how it works. So, Suze, can you give me an example in numbers? Because you're confused. I'm a little confused about this half. Alright, so let's just say she meets all the qualifications. Her ex-spouse has applied for benefits. Let's say that's true. Or he hasn't applied, and they've been divorced for two years. And let's just say his social security is going to be 1,500 a month. She needs to also see what her Social Security is on her own going to be let's say it's 1,000. Alright, so let's say her social security is 1000. And now she has reached full Social Security age and she's applying for Social Security. Social Security will look at what her full benefit would be, which is 1,000 versus 50% of her ex-spouses, which would be 750 right? 50% of 1,500 is 750. She would get the higher of the two. So, she gets her full benefit, she gets her full benefit. Doesn't get anything from him. Nothing. But now let's say Now let's say she makes a lot less, let's say her benefits only 500 or 500, something like that. Alright, let's say it's 400. Right now, what happens is she will claim her social security for 400 or 400 and he still gets his 50, Gets his 1,500. But now what happens is Social Security will look at what half of her benefit would have been from him and they will make up the difference 350 from his 400 from hers. They combine it for seven 50, clears the bill Suze. So, there you go. So, she gets half, no matter what, it just depends how they get to that half. And is that half more or less than her full? That's it. That's how it works. Alright. I have one more question about that. They're divorced for two years and she doesn't have any social security then she just gets a flat half of his. Alright, there you go. Because a lot of these were housewives, it never worked or our mothers who stayed at home to be with the kids which are fabulous. Okay, good. Okay, are we ready to continue? Guess who will get quite a few questions. Who gets their social security this year? Me. Well you've been getting I've been getting some of Suze's Because you were born before January 1, 1954. So, you could claim half of mine for all these years. Right. And then and I do everybody and then at 70, KT gets to collect her full social security. One thing I just want to say full retirement age for most of you is going to be 67. If you wait to claim social security till you are 70 your ex spouse's benefit Does not become 50% of what you're getting at 70. It is 50% of your full retirement age. What you would have gotten at 67? Oh, that's good to know because you get more if you wait until you're 70, the claimant gets more. If they wait till, they're 70 that if you're claiming spousal benefit You only get 50% of full retirement age. Which whatever that is for your ex-spouse, that's what you would get. Even if they don't claim till, they're 70. But if they are claiming in their 70 you still only get half of what they would have gotten at 67. That's good to know. I didn't know that. Now we know. Now you know. Alright. Ready Suze? Next question is from Cathy can you tell me if long term care insurance is tax deductible? Can I get a credit deduction on my income tax return? That's from Cathy? It's a little complicated only because it depends. Do you file as an individual? Do you file as an S corporation? Do you file as a C corporation? Do you have money that's in a health savings account? So, it's a little complicated but I'm going to assume that you are an individual. So, if you are an individual and you itemize your tax return, then tax deductions for long term care insurance are deductions as long as they exceed 7.5% of your adjusted gross income. So, everybody goes to google look up the rules on this because you know if you have an HSA if you like I said a corporation and there are certain rules. Is it a qualified policy versus not? So, it's a little complicated. But check it out because it's worth knowing. That should be a podcast on itself. KT. Well let's do that. Maybe Sunday school, maybe make that Sunday school and explain it. Maybe I'll think about it. Maybe we can invite one of our really great LTC friends and everybody's genius. Everyone, if you have a question by the way on long term care. When you send that question into me, I immediately forwarded it to Phyllis who has helped so many of you, she did my policy. Everyone and I have to tell you, I forgot what it was. So I said, hey Phyllis what do I get if something happens and I have to have long term care, what she sent me was like, wow, it's a great policy and if you wanted to connect with her, go to the Women & Money app and look on it and um you'll find her direct link right there, genius person. Okay, Suze, this is from Karen and the reason I chose this one is that I think many of you listening are in this situation. So, it's not so much Suze's answer or advice. It's the fact that many of you, I think probably are going through something similar. It said my mother passed last year from a long battle with Parkinson's. My parents leveraged all of their savings. IRA took out a mortgage on their house, ran up credit card debts to pay for her care. Now my father is suffering health problems of his own and is not able to pay his Medicare copays. Now my dad lives on limited social security in a small pension. I tried to help him with a bank loan because of his credit score being so low he is not eligible to refinance nor obtain more loans from the house. He's 86 years old and just the sweetest, so sweet. Right. And she said, I want to help in any way I can. And we have actually given thousands of our own money and have given lots of time caring for our mother and father flying across the country over and over again. My sister doesn't have children and is now caring for him working remotely, has left her home temporarily, temporarily. I tell you all of this because I'm certain many listeners have similar care situations. Any advice Suze on what path we could take to release some of this financial burden and then careens very kind, wishing you both many happy, sun filled days ahead. Can you help her Suze? So, you know, KT both of us went through this problem. We sure did. Yeah. Not a financial one. But with our parents getting older. And one of the hardest things I think KT that you had to do was when your mama was living in an independent living facility, she had her own apartment. She had a little place that she could go out and read and do all of this stuff and she love it. And we needed to make the decision to put her in the skilled nursing facility. That that was part of her complex. Remember that? Yeah, she kept falling and it was getting very dangerous for her and for myself, my mother decided on her own. My mother was just like me in so many ways that she was going to sell her house. She was moving to Florida and she was going to live in this independent place by herself Because she now was in her 90s. So there comes a time everybody, there comes a time when you have to look at your parent and maybe they'll make the decision on their own. Maybe they won't. We're living in a home by themselves. Especially if they cannot afford it is not what needs to keep happening. So, is it possible that you're far better off looking for a place right now selling the house that your daddy owns? Because you've been taking out loans just to allow him to stay there. What if you were to sell that house and take whatever money there is and get him into you know an assisted living facility or someplace that he can be looked after not just by your sister, not just by you but the people that are there and then he has other people around him as well. And I can tell you as a man in one of those facilities because it's mostly women. Oh, everybody will be doting over him. He'll be very popular, very popular and then he starts to get used to it and he starts eating with people and that's what should happen here. So, the best advice that I could give you is to decide where should that be? Should that place be near you near your sister. Where should it be that especially with um real estate as high as it is right now, I would start making the moves you need to make today to protect all of your tomorrows. Please don't wait until it's too late because if it's too late he may have to go straight into a skilled nursing facility and those are really expensive. So that's why. And he can make, he can make the decisions now with you, with you. Big difference. And if he says no, no, no, sometimes you have to say yes, yes, yes, no matter what. Because the other thing that happens is that as some people get older and older, they almost revert back to being younger and younger and not making decisions that are wise. So, you know, there's many reasons for that. So, it's really important that you now become the loving parent and make decisions that maybe your father is having a hard time making on his own. Both of us had to do it. You need to do that now, Corinne, you're not alone at all. Suze. This next question is from Stone. Hi KT and Suze, my boyfriend of seven years closed on our home last fall. We agreed to pay for the mortgage together and co own 50% split on the mortgage. We have no plans at this time to become parents since the financing and title have to be in his name for the rules of his first time buyer program, it is likely that I cannot be added to the deed after closing. My deepest concern is that if we should not get married in the future and we break up years into this financial arrangement is my interest in the house protected if we place it in a joint trust with both of us as trustees. That's the question. I don't I don't have a clue. That should have been your quizzie. Here's what you need to understand because the house is in his individual name and you are saying to me you cannot change the title of the trust. As long as you have the particular financing that you have that you would have your own individual trust. Obviously, he would have his own individual trust. Especially because you are not married within his individual trust. He can say and changed the title from his individual name to his individual name in the trust. He can have that trust make it, so he leaves you the beneficiary of that home. But here's the catch. He can change it anytime he wants, and he does not have to tell you that's what you need to know. So, are you protected? I have to tell you; you are not, and you just need to know that. All right, next question, KT. Okay, this is our last question. I was listening to your June 25th, 2020 episode in which you advised a listener who was planning on converting money from an IRA to a Roth IRA to do the conversion on the day when the market is low. Yeah. Ready? I mean 2020 I suspect that this is because we want the tax to be as low as possible on the converted amount. So, could you please explain what needs to happen in order for a conversion to happen. Does one need to first sell the stocks in the traditional IRA? Then move the cash into a Roth IRA or can one simply move the stocks from a traditional IRA into a Roth without cashing out first? I'm considering a conversion but would rather not have to sell the stocks currently in my own traditional IRA. Got it. So here's what you all need to know when you are converting from an IRA to an IRA So it doesn't matter if it is a Sep IRA, doesn't matter if it's a traditional IRA, doesn't matter if it's a Roth IRA. But let's say you are converting from a traditional IRA to a Roth IRA because they are both IRAs. Individual Retirement Accounts, you can actually just change from one to the other without having to sell any of your stocks. So your stocks will go with you. However, if you go from a 401K. And you convert to a Roth IRA that is a 401K to an IRA. Those are not the same type of accounts. So, from a 401K. You are going to have to cash out everything within your 401K. And you will convert cash into your Roth IRA and then buy whatever it is that you want very different. Okay that's it, KT, that's it. Time for my quizzie. Quizzie everybody. So here we go, KT and Suze, I've been studying your recent episodes on the five-year rule. KT, I just had to give you one on Roth's knowing that tomorrow, when this airs, I'll be in surgery, I will be laughing, thinking about you just so you know and Danielle says boy, I haven't studied this hard about anything since college. Me too. At moments I feel like it's all clear. But then other moments I feel confused again. You said that every time you convert money to a Roth IRA the five-year rule clock starts over again for that new conversion. I did say that but at one point you also said that when you roll over from a Roth 401K to a Roth IRA if your Roth IRA has been open for more than five years then your raw 401K money won't be subjected to the five year rule, is there a difference between a rollover and a conversion? So KT, the quizzie is right, is there a difference between a rollover and a conversion? Wait, wait, before you answer. Right, everybody, is there a difference between the rollover and a conversion? Is that your final answer? Yeah there is, yeah. Now do you know what the difference is? One of them is the roll over is when you move from a 401K. To an IRA Wait, wait it is, it's wrong. A conversion is when you move from a traditional to a Roth, you convert from a traditional IRA to a Roth IRA What if you convert from a traditional 401K. Wait a minute. A rollover is when you just roll over from 401K. Two, you know and another retirement account, when you go to have different employers, you roll it over, roll it over, roll it over. It can also be a transfer. Yeah, I don't know about that but there are transfers and you're only allowed transfers once a year just so you know but roll over many years. So, you roll over all right, everybody, let me answer this question. For what. Are you singing? Remember that song? Roll over Beethoven? I wish I forgot that song at home or I think it was a Beatles song. Right? I don't know. And now you've got me wondering. Alright, but back to the quizzie so Danielle, here's what you need to understand when you go from light to light, you go from a Roth 401K to a Roth IRA. Not a traditional 401K to a Roth IRA. But a Roth 401K to a Roth IRA, your Roth 401K will take on the tax rule the five-year tax rule of how many years your Roth IRA has been open. So if your Roth 401K have been opened for 15 years and now you opened up a Roth IRA a year ago when you roll over to that Roth IRA because there's no taxes, you're just rolling it over, right, You then have only a one year time clock going for that Roth 401K. Which is why you want to open up a Roth IRA as soon as possible. When you convert you are going from one type of retirement account that you have never paid taxes on like a traditional 401K or a traditional IRA. And you are converting to a Roth account and because you convert, you owe taxes with a rollover, you normally do not owe taxes when you go from one to the other. When you do a conversion, you do owe taxes on the amount of money that you convert. That is the difference between the two and a backdoor Roth. Just so you know, is always considered a converted Roth, you just need to know that. All right, KT, not too bad. I can say that really easy when it's a rollover, it's apples to apples when it's a conversion it's apples to oranges. Right, They're different. If again, you can see the smile on her face. That's an easy way to remember it. They're different. Maybe it's that time, everybody wishes me well on wherever I am right now as you're listening to this. But until Sunday, what do we want, KT? Everyone's going to be strong, safe, and secure. When did safe get in there, KT. Strong, smart, and secure. See you Sunday. Here she goes. Wait. We want to be safe because you're in surgery. Right. No problem. Alright, Everybody. Love you, love you. See you soon. Bye bye.

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