Podcast Episode - Ask KT & Suze Anything: Everything is Relevant at Some Point


401k, Home Buying, Life Insurance, Podcast, Retirement, Taxes


February 01, 2024

For this episode of Ask KT and Suze Anything, Suze answers questions about planning your retirement, long term care insurance, home buying, and so much more.

Listen to Podcast Episode:


Podcast Transcript:

Suze: February 1st 2024

KT: The month of Love.

Suze: Does that give you an idea of what this podcast today is going to

KT: The Month of Love...

Suze: And that's because why Valentine's Day, right?

KT: Yeah. And I'm in love with my little Hot Island where we're back today. We're so happy.

Suze: So, as all of you may not. Well, first of all, KT

KT: Yeah. Welcome to the Women and Money Podcast. Everybody. This is where you ask KT anything and she's gonna ask Suze and we're gonna answer your questions with advice you won't believe is gonna change your life.

KT: I'm in a happy mood.

Suze: She's happy, she's happy, but welcome everybody like she said to the Women and Money podcast. But also everybody smart enough to listen. We welcome you all here on the podcast. It is Suze O and, KT

Suze: And KT, what did you think about last Sunday's game, with the Kansas City Peep?

KT: Oh my God. First of all, it was so exciting. I'm so happy that the Chiefs won. And if I were those Chiefs, I would hightail it back to Kansas City and go right to Bryant's barbecue. Baby, Arthur. You and I went to Arthur Bryant's Arthur Bryant's barbecue and Suze had a slab.

KT: We got real dirty there. We were on our bus tour,

Suze: We got dirty, meaning how?

KT: meaning we got really sticky and gooey and

Suze: Well you get, when you eat BBQ.

KT: It was so good. I had chicken because I don't eat...

Suze: KT, let's get back to it now. All right, we've got a little bit of time till the Super Bowl. So I can't wait. Now, why I can't wait for the Super Bowl. Who do you think's gonna win? 49er Kansas City, you know who I'm rooting for, but I hope you didn't wait to take advantage of the 18 to 23 month certificates of deposits at Alliant Credit Union because as of today, they absolutely lowered their rates. So they're currently at 5.15% or for deposits of $75,000 or more. It's 5.20%.

Suze: Now, there are still great rates, especially if you go out to 23 months.

Suze: But right now I'd have to tell you my favorite really is the 12 month, but you would get it to go out to 17 months and lock in that 5.4 or 5.45% for deposits of $75,000 or more.

Suze: I knew it. I had a feeling but either way if you want to take advantage of what's out there now, go to my alliant. That's myalliant.com. All right. KT, let's get to those questions.

KT: We have quite a few still about 401ks retirement. All based on that big fancy Suze school you gave a couple of weeks ago.

Suze: No, KT, I actually gave another one last Sunday. Obviously she did not listen to it. That's besides the point.

KT: I don't think it was relevant for me. The 55 right? The 55

Suze: KT. It doesn't matter whether it was relevant to you or not, you need to learn these things in case you have a younger niece or nephew or a younger. Who knows that asks you a question. What do you mean? It's not relevant?

KT: Oh, I thought you meant I need to know the answers in case you were out sick or played hooky one day.

Suze: Will you just ask me a question already!

KT: Here we go. Everybody. Let's get this, let's get this show started.

Suze: Like I'm the one stopping it?

KT: This is a good one. This is from the wall. I believe it says hi, Suze. I know you recently...

Suze: When KT says the wall.

KT: Oh, tell everyone.

Suze: So I have a women and money community app and it has a Suze Wall where people ask questions and every once in a while we choose a question, KT looks at the wall and chooses a question from there. And I guess that's where she's choosing this. If you want to be part of the women and money community app, just go to Apple Apps or Google Play and Search for Women and Money or Suze Orman and you'll see it. All right.

KT: Ok. So from the wall, this question came up. Hi, Suze. I know you recently covered the order in which contributions should be made to 401ks, Roth IRAs and Investment Accounts. But where does long term care insurance fit into that order?

KT: In my case, if I contribute to my employer's match for my 401k and contribute to a Roth IRA, there's nothing left for long term care insurance. I do believe it's important, but I'm just not sure how to swing it. What do you think Suze?

Suze: I'll tell you what I think. I think the most important thing to understand is that you only buy, in my opinion, long term care insurance if you know, you could afford the premium now all the way into your mid-eighties or possibly even nineties because as time goes on and you can't afford it and therefore you have to drop it. All the money that you put towards it previously is just wasted.

Suze: So for this particular question here is what concerns me and I think her title is, I want to be Money Smart. So if you want to be Money Smart, you have to look at reality here.

Suze: You're saying to me and I don't know how old you are, but you're saying to me that you're only investing up to the point of the match in your 401k and then you contribute to the Roth IRA and then there's nothing left. And truthfully given that the contribution level to a Roth IRA is either seven or $8000 this year, depending on how old you are.

Suze: And up to the point of the match in your 401k isn't that much either if you really are that tight and there's nothing left now, even for long term care insurance now is not the time for you to be buying it. Do I think it's important? Absolutely. Do I think all of you should be looking at buying long term care insurance, especially when you're in, in your fifties because premiums are more affordable than you are still healthy at that point in time. Absolutely. But you have to be able to afford the premium all the way from in your fifties up until your mid eighties and possibly early nineties.

Suze: And it's, it's pricey and you have to be able to factor in probably a 10 to 20% increase in premiums over those years, if not more. So, in this particular case, I wanna be smart. I know it's important, but if you have to swing it, it's not something that's for you at this point in time. All right, KT.

KT: Ok. Next question is from Chris.

KT: Hi, Suze and KT I'm a 40 year old manager that makes about 84,000 gross annually. My employer provides a 4% match to our 401k in reviewing my finances at the start of the new year and taking into account what I've learned from you. I think it makes sense to change my 401k contribution to 4% to meet the match and move the remaining 4%. I was contributing over to the Roth IRA. Would you agree?

Suze: Should that be your quizzy?

KT: Yeah, you... this can be a quizzy.

Suze: No, I have another quizzy for you. But do you want to, what would you answer?

KT: Yeah, I would do that. I think any time you can put money in a Roth, do it.

Suze: Obviously, if you are contributing 4% over the point of the match in your employer's 401k, that isn't even a Roth 401k. You absolutely should only contribute up to the point of the match and whatever remaining money you can put into an individual Roth IRA. Next KT.

KT: I got another Roth coming up. It says, hi, Suze and KT from Rachel. My question is how to proceed with growing my money,

KT: Suze. I'm gonna ask you this. How do I grow? I grow. I have a Garden Rachel. Now when it comes, when it comes to money, that's Suze's green, not mine. Now, she said my income is too high for a Roth Ira. So I was planning on contributing the IRS allowable maximum to a non-deductible IRA and doing a backdoor. Roth and my company's 401k, even though my company only matches 1%.

Suze: So, so far KT this woman works for somebody. They have a 401k. She's contributing to it. But she also wants to do a backdoor Roth IRA at the same time. Ok. Go on.

KT: Ok. I realized that due to the pro rata rule on the back door, IRA conversions that moving all of my old 401ks into IRA rollovers now limits my ability...

Suze: To do a backdoor Roth IRA, KT because of the pro rata rule.

KT: So she obviously wants to know what to do.

Suze: Correct. I can tell KT is looking at this and going, this is not. Why did I pick this one? Did you pick it because you couldn't understand it?

KT: No, I'm trying to understand what she's getting.

Suze: KT just handed me, Rachel, this email that you sent and it's quite lengthy. So I can see KT was trying to shorten it.

KT: I grow gardens, but when it comes to growing Roth money...

Suze: She just doesn't, not. Here's what all of you need to understand is that Rachel now is saying she makes too much money to qualify for a Roth IRA - contributory one where you can contribute seven or $8000 a year depending on your income. All right.

Suze: In the past, she worked for an employer where she had 401ks with maybe one or two or three or five, whatever it may be. And she rolled all of them, which was a total of $60,000 from a 401k into an IRA rollover. And because she did that, she did not owe any income taxes on it yet. She has $60,000 in an IRA that's still with pre tax money.

Suze: Now, what she wants to do is she still wants to contribute to her current employer's 401k, but she also wants to do however, a backdoor Roth IRA as well. The problem is everybody and take out your little Suze notebook for this one when you have any money in a traditional IRA, which means a pre-tax IRA and, or an IRA rollover a SEP IRA, a simple IRA. Any individual retirement account that you have never paid taxes on, if you go to do a backdoor Roth, which simply means you put money in a non-deductible IRA and then you convert it because there's no income limitations on conversions. 

Suze: If you do that while you have money in traditional IRAs , you then get penalized by what's called the pro rata rule where they will take the amount of money that is in all of your IRAs and they will then divide by the money that you're going to put into the backdoor Roth and you will have to pay taxes on whatever percent that comes out to be. So you cannot and you should not be doing a backdoor Roth IRA, if you have money in traditional IRAs but Rachel, here's what you can do. 

Suze: You can take the money that's in the traditional IRAs and you can roll it back into your employer sponsored 401k plan where you currently work. So now all of your money is in a 401k and now you qualify for a backdoor Roth. Why? Because you don't have any money in traditional IRAs anymore? All right, KT.

KT: I have another Roth this one stumped me too. You ready? This? I don't, I never heard this in my life. So I picked it. I'm 61 years old...

Suze: Before you go on. Everybody, I just gave you a tremendous Suze School there in that. If you really want to do a backdoor Roth and I have many podcasts on the topic. You can just search for them on the app and find them.

Suze: But if you really wanna do a backdoor Roth and you have money in a traditional IRA of any kind. And you're working for a company that has an employer sponsored retirement plan, like a 401k. Just roll the money from your traditional IRAs back into the 401k and then you will qualify. It's something you should really think about. All right now.

KT: OK. So Suze, I chose the next question because I never, ever, ever in all the years we've been together doing this. I've never heard this.

KT: So the question is, it's also about Roth ready? I am 61 years old and recently declared disabled. I would like to try to start an internet based business and have it all through my Roth IRA. So my Roth will grow.

KT: I don't quite understand this. I have heard it can be done. I've also heard there are problems.

Suze: Yea, when it comes to a disability. You have to be very, very careful because possibly you're on SSI or you have disability coming into you from somewhere and maybe you've read somewhere that you could make money within a Roth and it won't count against disability and you can make your money grow that way. I don't play games.

Suze: I don't play games with what the rules are, but I wouldn't be doing something to go around disability and possibly one day somebody finds out and then you are disqualified from it. It is not worth it, my friend. All right. Ok.

Suze: I really am a stickler. Aren't I KT?

KT: Oh my God. She does not break a rule. Bend a rule or even challenge a rule ever.

Suze: Ask me how many dinners, wardrobes, whatever it may be. I have taken off my taxes over all these years and I've had many, many work lunches. 

Suze: None, not one because really we discuss a little bit of business and then we have fun and we talk so I am a stickler with sticking to the rules. All right, KT.

KT: Ok. Next question from Jasmine.

KT: Hi KT and Suze. We are close on making an offer on a home in Delaware that will eventually be our retirement home. Hopefully within the next two or three years, the purchase price is 800,000. Our FICO scores are 820. You rock. We own, we own our primary home outright and our annual income is 350,000, which is the better option. One pay outright. We have the funds to pay the home outright for from our ladder CDs... ta ta ta ta...get a 5 and 1 arm. Is it...

Suze: A 5 and one arm and one for five years? And then it changes, right.

KT: So she said, and then she said any other option...

Suze: You know what's funny, KT, what's that is as all of, you know, I go through all the emails just to see if anybody needs immediate help. And I wrote Jasmine, and I answered her question for her right now. Most people would think that she could pay it outright by cashing out her ladder CDs. However, she may end up paying penalties on some of them for early withdrawal, KT. So that would mean that she would lose 3 to 6 months of interest just to take that out. And if she has all of that money, she has 500,000 in CDs. That can start to be a whole lot of money.

Suze: You could get a five and one arm and absolutely finance it that way.

Suze: Or there really are no other options. So, here's what I told her I would do, I would get a five and one arm right now, which means that the interest rate would be fixed for five years and that interest rate would probably be right around. I'm sure 5% or so at this point in time.

Suze: But as those CDs come due and I'm sure they're gonna come due within the next 12 months, maybe 18 months, maybe two years at max when they come due, just take that amount of money and pay off that mortgage with it so that it's totally paid off. Obviously, within five years. Remember, she also gets a tax write off on that five and one arm of her taxes and that may be more than the interest that she's making on money in the CDs, believe it or not because of how it's done. So that's what I told her to do. Ok.

KT: We're going back to Roth everybody. I threw that one in because I thought we needed a break from that. So KT and Suze, my employer allows for a Roth 457 B which I contribute $200 per pay period in order to receive the matching contribution of up to $1500 annually. However, the employer's match is deposited into a traditional pre tax 457 B account. So Suze, should I only contribute up to the point of the match and take the remaining amount of money and open my own Roth IRA with Fidelity?

Suze: Absolutely. Next question. Go on KT.

KT: People, I love questions like this: Suze, where do I find rule 55 in the IRS code question?

Suze: So the reason this person is asking this question again, this is, looks like it's from the wall KT. Is because of the Suze school that I did last Sunday.

Suze: And I talked all about it and it's something you all really should listen to. So an answer to this question and it's funny again, KaT, that you picked this one because I saw this on the wall and I did answer it directly.

Suze: So I'll answer it again here. But if you really want to look at the answer to this, go to the wall and look, let me just tell you something great about the women and Money app. There's a community there and they all answer one another's questions and it's a place that you can ask and other people will help you.

Suze: And if somebody answers and it's wrong, sometimes I'll go on like I did a few days ago and say no, that's not how it works. Everybody, this is how it works, but it's a sweet little place for many of you to find a community that's interested in financial information.

Suze: For those of you who are looking for specific regulations related to rule 55 you can find them in the IRS publication 575. It's called pension and Annuity income.

Suze: And this document will provide you detailed information about the rules and regulations for qualified retirement plans, especially the ones that I talked about last Sunday. All right, KT, what do you got?

KT: My last question, Suze is from Audrey.

KT: She said, Hi, Suze and KT. My question, a whole life insurance policy was opened for me under the strong encouragement of my mom back in my mid twenties, she passed away. Um She is 36. She's about to be 36 until about 11 years ago. Ok. So, so mom encouraged her to do this and sadly, her mom passed away unexpectedly in 2017. And since then I took over her payments of 7950 a month, Suze, there's about 7000 cash value on the 100,000 currently.

KT: Do I keep investing in the policy and take advantage of the locked in rate in case I do have dependents someday or would it be wiser to invest in something else?

Suze: So, Audrey, first of all, our love always goes out to anybody who loses a mommy, a puppy, a child, anybody. It's always so sad. Right? But here's a little number thing that you should think about, which is, and here's what's funny, KT wanna know what is it? I read this as well and I answered Audrey directly. So do all of you get the idea that if you write in to ask Suze Podcast at gmail.com. It is pretty likely that if you ask a question that maybe KT's gonna pick it and I'll answer it on this podcast or chances are I might even answer you directly and then chances are it won't be answered at all. You just never know. All right. Anyway, Audrey, this is what I wrote. You and everybody should understand this. Audrey doesn't have any beneficiaries right now. Anybody really to leave this to if Audrey had invested $79.50 a month, every month, either into a Roth IRA or a savings account or whatever it may be.

Suze: And all she earned on it was 4% as an annual average rate of return. Now, I have to tell you over the last 11 years, she easily could have earned close to 10% annual average rate of return and you don't even want to know what that would be in comparison to her $7000 that she has in there.

Suze: But even if that's all she did at 4% she would have a little bit over $13,000 right now. That's a $6000 difference on just $79.50 over just 11 years. It's like $500 a year difference.

KT: Suze, What was, what, what about 10% what would it have been?

Suze: Oh my God. It probably would have been like almost 18,000 $19,000 but her cash value is only $7000. So my advice to Audrey was you absolutely cash that out right now and put that... let's think about it, Audrey, you could take that $7000. You're gonna be 36 you could put all $7000 as long as you have at least that earned income into a Roth IRA and let it grow. Oh my God, are you kidding me? Absolutely.

KT: Alright. Wait I have another question. That policy was 100 grand, right?

Suze: Her death benefit. So it probably wouldn't have paid out to her KT for another let's say 50 years.

KT: So if she takes the 7000 opens the retirement account, she's gonna be 36.

KT: She doesn't need that money for like another 30 years for retirement and put the 79.50 in every month. Would that be more than that cash?

Suze: That would probably even just a 6% annual average rate of return over all those years? She would have probably about 100 and $18,000 and it would be in a Roth IRA. So it would be tax free to her, tax free to her beneficiaries and save the 79.50 every month for another 20 years to just get $100,000.

KT: Now, the next question is, should she get term insurance?

Suze: Not yet.

KT: She's still 36.

Suze: She's still young enough that if all of a sudden she's married and she has kids. She has to be in it. Very affordable, very, very affordable. All right, KT.

KT: Quizzy time.

Suze: Quizzy time. Although you should have been asking me a lot of quizzys here.

KT: It's been a quizzy day.

Suze: All right. This one I also got from our wall. It said, good morning Suze. Is it true you get the best protection against anyone suing me if I leave my money in an employer retirement account rather than an IRA, especially if you have a substantial amount of money?

KT: I know the answer.

KT: You can't be sued in your retirement accounts. They cannot sue you and take money out of your retirement accounts. Now, whether it's an employer or a, or the IRA, that I'm not quite sure if there's even an advantage one over the other. But right now I think you can't take that money from her. Right?

Suze: Or him or, I don't know who this was actually. But anyway, can you choose if it were you? You had a substantial amount of money in a 401k...

KT: I'd go for the IRA.

Suze: You would? Final answer?

KT: Yea (Suze makes the wrong answer sound) Oh, come on, come on, come on.

Suze: All right. So here's the answer everybody. It is true that money in an Ira and a 401k, an employer sponsored plan absolutely protects you against bankruptcy and things like that.

Suze: However, money in a 401k, it would not matter. Now, this person said they had a substantial amount of money.

Suze: They have 10 million in their 401k, a billion dollars in their 401k. It's protected

Suze: In an IRA, It's only protected up to approximately $1.3 million.

Suze: Until Sunday when we have another Suze school and we have to wait a little bit for the Super Bowl. What, KT?

KT: You got to put people first, then money, then things.

Suze: Now you stay safe and hopefully I'll always stay unstoppable. Bye bye everybody.

Suze Orman Blog and Podcast Episodes

Suze Recommends


Suze Orman Blog and Podcast Episodes


When Graduate School is a Bad Idea

Read Now

Suze Orman Blog and Podcast Episodes


Podcast Episode - Ask KT & Suze Anything: Should We Buy or Rent When We Retire?

Read Now

Suze Orman Blog and Podcast Episodes

Saving


Your Ultimate Savings Opportunity Starts Now

Read Now