Podcast Episode - Ask KT & Suze Anything: Why I Quit My CPA

For this Ask KT & Suze Anything edition, Suze answers more questions about Roths, RMDs, Social Security spousal benefits and more!

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Podcast Transcript:

KT: Hi everybody. Welcome to the Women and Money podcast, and everyone's smart enough to listen. This is KT here, and I'm opening this on March 13th for Suze, who is in the studio with me, but she's still suffering from sinuses and who knows what else. Listen to this nose. Listen to her.

Suze: Hello, hello. So we thought we would get through this podcast if I saved my voice some because it just now came back after a while of me not even having one. Don't ask me why.

KT: I'll answer the questions for everyone.

Suze: Oh, I love that.

KT: All right, so...

Suze: Anyway, before we start though, KT, with question and answers, which is very important, everybody, cause your money is far more than what's happening in the market. It's these little things that you also need to know about like converting a Roth, not converting it, all kinds of things. So we have to deal with those things as well. They're equally as important.

Suze: But I told you that last Sunday I was going to tell you my interpretation of what's going on with the market. Wasn't able to, God willing, I will do so this Sunday, but here's the bottom line. Yeah, we're in for a rocky road, and I don't know which way that road is going to lead, and the reason is this the incredible uncertainty of making a decision, then it's unmade. This is going to happen and then it's not gonna happen on and off causes confusion and when not only investors like you are confused, but businesses are confused, governments are confused, everybody's confused, everybody just stops and does nothing.

Suze: And when you do nothing it's because you're afraid. And what have I always told you? Fear is the greatest internal obstacle to wealth. So it's best to do nothing than something you don't understand in many cases. So I have no problem with just briefly saying if you're in good quality, everything, as I've told you, just stay put, but some day we'll go into greater detail after we figure out what happened this week in the market all the way through Friday. All right, KT.

KT: OK, so I've got some great questions here and this one says, hi Suze and KT, I've been listening to you for a year and a half, and you have made me feel much more control of my situation. And this is from Michelle. She said, Suze, we bought our forever house in May 2023 to be in a better school district, we went from a 2.5% interest rate to now having a 6% interest rate. Our new house costs significantly more than the old one, so our mortgage payment has more than doubled. We did plan for this, all right, that's the key to this email, Suze. We did plan for this. We saved to comfortably staying afloat and figured we would be able to refinance in 1 to 2 years. My question for you is, at what point would we refinance when rates get to 5% or lower? What would make a difference?

Suze: It all depends seriously, and what it depends on is this, so listen closely. Many people make the mistake of they do a mortgage at a specific interest rate for let's say 30 years like you probably did at 6% and then you think, all right, when interest rates go down you'll refinance and let's say that happens 4 or 5 years from now. Then you refinance for another 30 years. So these 4 or 5 years that you have been paying on it, you've just lost all of that. So you think that you're ahead, but the truth of the matter is you're not. So rule number one, if you ever do refinance. You have to make sure you don't have the mortgage term longer than the current amount of years left on your mortgage. So if you have only 26 years left on your mortgage that you're refinancing, then refinance your new house for 25 years, all right, not another 30, something like that. That's number one, number 2.

Suze: It's hard for me to answer the question because I don't know if you're going to have points involved, not points involved, what the closing costs are going to be. So the way that you would figure this out is what is it going to cost you to totally refinance this house. And what will your current mortgage payments be? And what will the savings be if you were to do that between your new mortgage rate and your old? Then you divide that number, the difference into the cost of refinancing.

Suze: And then you'll know how long it's gonna take you to make up for that figure. If it's going to be 5, 6, 7 years and you don't think you're going to be in the house that long, then it makes absolutely no sense to do it. If it's gonna be like 2 years and you know you're gonna be in the house that long or longer, then you refinance. So that is how I would answer that question. In fact, that's how I did answer it. All right, next, KT.

KT: Next is from Pamela, and it's not a question but it's something I want. It's a lesson and Suze, you taught her this lesson ready.

KT: Hi KT and Suze.

Suze: Have I taught you any lessons?

KT: Me? Oh my God, we don't have enough time and podcast for the rest of our life for me to answer that.

Suze: Because people sure like my Roth IRA podcast.

KT: I don't want to talk about March 6th.

Suze: All right, fine, no problem.

KT: So I left your Suze school on March 6th.

Suze: Oh, that's fascinating because I'm sitting here thinking about how did KT even know that the Roth IRA quiz was on March 6th. I went, did she listen to it?

KT: I listen to that over and over.

Suze:  Honest to God, everybody, I had no idea she was just gonna say what she was because I don't know these questions she's reading.

KT: I loved your Suze school on March 6th. I only got one question wrong, so I was like showing off Pamela. Pamela got one question wrong. KT got like 50% wrong. Now she said, I also want to..

Suze: KT, behonest, you got, you got...

KT: I got like 70% wrong.

Suze: Yeah, you got 3 right out of 18.

KT: That's not true.

Suze: It is true.

KT: It is not. Don't listen to her. I also wanted you to know that when I was getting my taxes done a month ago, the CPA told me I couldn't withdraw from my contributions in my Roth IRA without a penalty. I've had my Roth IRA for 10 years. I will be 58 in June. I told him that is not true. I didn't want him doing my taxes, Suze, so I walked out the door.

KT: She left. I'm so proud of her. She said, I can't even take credit. I learned this all from you. I want to help my 28 year old son and 31 year old daughter with everything I've learned from you. Thank you so very much, Pamela. Is that great? She had the courage, everyone, to get up and walk out he was so wrong.

Suze: And the lesson from that is just because somebody is in a suit sitting behind a desk with some plaque that says they're this or that doesn't mean they know what they are talking about. Just a quick story, KT. I did a PBS special, the very first one ever. And that is when I said and introduced Roth IRAs for the very first time and told everybody that they could take out their original contributions any time they want without taxes or penalties regardless of age or how long it's been in there.

Suze: All these people after it aired wrote in to PBS and said that's absolutely wrong. You have to take that off the air, blah blah blah blah. Ha, I was right. They were wrong. Just because they have a few initials after their name doesn't mean squat.

KT: The, the point of that whole experience is that you've got to really know and you can't just trust one...

Suze: You have to check, double check, be clear, be crystal clear and no and no, and hey, if you didn't believe him or her, go to another one and see if they agree, but it's written everywhere. So he's just whatever. Ok, go on.

KT: OK, this is from,

Suze: Wait, aren't you proud of me? I didn't call him what I was going to say, he asked.

KT: Yes, thank you, especially with that nasally nose of yours. The next is from...

Suze: Do I snore with it?

KT: No.

Suze: Oh, that's good to know. OK, go on.

KT: All right. The next question is from Deb Johnny. Don't you love that name? Deb Johnny?

Suze: Do you think her mom's name is Deb? And her daddy's name is Johnny, and they named her Deb Johnny.

KT: Maybe I just think it's a pretty name. She said, Hi, Suze, I hope this is a quick one. I'm in my mid-50s. I've recently retired. I have about $3 million in assets. I'm single with no dependents. I have $650,000 in my 401k. Of which 500,000 is traditional, the rest is Roth. What do you think about using my traditional 401k balance to purchase a single premium immediate lifetime annuity to get some predictable income before I become eligible for Social Security? She's planning on taking that at 70. I'll get about 2.8k per month, which will cover more than 50% of my monthly expenses. She's doing this, Suze, because she said that way she can let her brokerage account grow without starting to draw down too much. So I, you know, what do you think about that?

Suze: I think it's a really, really bad idea.

KT: Why?

Suze: And the reason is this, Deb, Johnny. Right now you're in your mid-fifties and KT just said you want to do this cause $2.8k a month is going to pay for 50% of your expenses. That's your expenses today, girlfriend. That 2.8 is not going to change for the rest of your life. So what do you think it's going to be worth 20 or 30 years from now? What do you think your expenses are going to be 20 or 30 years from now? You need to keep up with inflation and you need growth. At this age, you do not need more income because you already have $3 million in assets.

Suze: So the goal here is number one to protect your assets, but keep up with the income for when you really need it that you have it invested in something that grows dividend paying stocks if I were you. But no, I would not be taking it now for my 401k. I think it would be the biggest mistake you could ever make. If you told me you were 69 and you wanted to do it. I'd think about it. But not in the 50s. No, go on, KT.

KT: OK, next question is from Maria. She said, hi Suze and KT. I've listened to your Sunday podcast on questions about Roth. This is another March 6th. It was so informative. Thank you so much. I want to ask if I could use my money in my savings account, after tax, to transfer to an IRA and then convert it to a Roth through the back door. I already max out my Roth 401k at work and I'm not qualified to fund my individual Roth because of my income. Is this possible?

Suze: What you should do if you do not already have an IRA, a SEP IRA, any individual retirement account, forget what you have at work. Work Roth 401ks, traditional 401ks, whatever, they don't count. But if you do not have any additional IRA outside of work.

Suze: Then therefore you can just open up a nondeductible IRA and then convert it to a Roth, just that simple that's known as a back door Roth, so that you can do as long as you don't have another individual retirement account of any kind.

KT: OK, OK. Next is from Jody. I never miss an episode of your podcast, and I used to watch Can I Afford it as a family.

KT: Well, we have a little treat. We have a treat coming up for YouTube. You just be patient. Well, my little girl has grown up and she's now 29 years old. Does that make us feel old?

KT: She wants to set up her first Roth IRA. She has $40,000 in a high interest savings to use to fund an IRA. Suze, I don't know how to guide her. Is there a brokerage firm you recommend that doesn't charge many fees? What should she do? ETFs, mutual funds? Question, question, question.

KT: Oh wait, and then there's one more line here. It said, but like KT, Roth investing and I are like oil and water. Thanks, Jody. You and I are from the same, same batch. We're both a little...

Suze: ...slippery, huh, anyway, um, so all you have to do is like go to Schwab, go to Vanguard. Vanguard is a fabulous brokerage firm. Vanguard Fidelity or Schwab either one doesn't matter, OK? But let's say you did Schwab, go and open up a Roth IRA for her fully funded to 7000 dollars put it in their treasury money market fund or whatever it may be and then have her dollar cost average into these stock markets because obviously the stock market is not having a really great time this year so far, but it will again. Now if I were you I would have her do exchange traded funds, ETFs, so she has some diversification.

Suze: So it's really just that simple. So if she puts in $7000 at once, then you would have her put in approximately $583 a month into either the Standard and Poor's 500 index fund, the Vanguard total stock market index fund, or just keep it simple for her now to get her used to investing in the ups and downs of the market. That's what I would be doing if I were you. Next, KT.

KT: OK, I have a question from Scott. He said, Suze and KT, thanks for all the advice. I'll be 50 in June. He's a Gemini like you. Gemini Scott.

Suze: Like me, I'm gonna be 74.

KT: All right, Scott, you have a long way to go. Between your show...

Suze: And may your 24 years till that age be as great as mine.

KT: Yes, between your show and conversations with my mom, converting all of my pre-tax retirement accounts without 401k seems to be the best course to limit RMDs. So he said, I have about 6 traditional IRAs with recent and potential market corrections. Would you recommend converting as many as possible to Roths this year?

Suze: I would, depending, however, what the tax ramification will be to you, because even though the markets are down, that doesn't mean that you don't have a lot of money still in those positions. So therefore. After you have checked with a CPA, then you decide which investments that you have make the most sense, like which ones do you want to keep that have gone down dramatically. And then you would convert those, but it's definitely worth it to convert while the markets are down.

KT: All right, next question.

Suze: Why did you look at me like that?

KT: I didn't know if you were done.

Suze: I wasn't sure I was done.

KT: I know. Are you finished?

Suze: Let me think about it.

KT: Yes, you are, OK, because I have so many good questions.

Suze: But what's key about that is never do it all at once unless all you have in there is like 3000 $5000. If you have a lot of money in there, never convert to a Roth all at once. You'll be so sorry that you did, especially if it puts you in a really high tax bracket.

KT: All right. Next question is from Gay, she said, I'm a retired New York City teacher with a 457B and a tax deferred annuity. They have RMD rules that seem similar to those of traditional IRAs, and now she's asking, I also have a relatively small traditional IRA opened at the beginning of time. Can these three types of accounts be aggregated for the RMD so I can draw from the least lucrative one? I don't, I thought that was a good question because I don't know. OK, can you?

Suze: Are you sure you don't know. Is this you're quizzy.

KT: If it's a quizzy, then I'm going to guess you absolutely cannot aggregate accounts like that.

Suze: And why would you say that?

KT: Because they're, they're all different. They're all different.

Suze: Ding Ding Ding-a

KT: Yeah, I see.

Suze: She got that but

KT: It's a good question,

Suze: Right? People wonder. You cannot if you have 15 different IRAs, then you aggregate all of them, the total that's in there for your RMD, and you can take it from anyone you want. It doesn't matter, but you have to do it on the total amount. But you cannot add into that amount what's in your tax deferred annuity or your 450 those are separate and have to do their own. What you could do is if you're retired and you want, you can roll them over like you could roll over possibly your tax deferred annuity into your IRA that you've had forever and aggregate it there. So that you'd only have to figure out one RMD. So look into that to see if you can do that with your accounts.

KT: So Suze, next question is from Linda. She said, I am a teacher and will receive a pension. We love teachers, don't we?

Suze: So much, so much.

KT: They're our favorite people. I'm a teacher, will receive a pension, but do not have enough Social Security credits to receive Social Security myself, my husband will receive Social Security, and I understand that I will be able to receive his Social Security benefit if he passes before me. But Suze, what about spousal benefit while we're both alive? He's 60. I am 59. We planned to wait until he was 70 to begin collecting his social. However, will I be eligible for spousal benefits while he is alive? If so, is there any benefit to having him start to collect at 67 so we can both receive benefits earlier, or is it best to still wait till 70? You got to set her straight, Suze.

Suze: Linda, listen. The biggest mistake that most people make is they always think that they are going to get 50% of their spouse's social security, no matter what. So if their spouse waits till they are 70, let's say, to get Social Security, you think you're going to get 50% of the amount that your spouse will get at 70, and that's not true. You only get 50% of what your spouse would have gotten at his or her full retirement age, which is currently 67.

Suze: Now, since you aren't going to have any Social Security, then what I would advise you to do is this. Let's just say that your husband is going to get $2000 at the age of 70. Therefore, you're not going to get 50% of that $2000. You get 50% of what he would get at his full retirement age of 67. That means at 67 he would probably only be getting about $1600 a month, which means you would get 50% of that, which is about $800 a month. Remember you have to be 67, your full retirement age to get the full 50% of the spousal benefit. So given that you and your husband are just one year apart, it's just so great I can't tell you. So this is what I would do if I were you.

Suze: Assuming that those numbers were your numbers and you have to do this with your own numbers, I would have your husband claim at the age of 68. And that would be about $1750 a month. I would have you claim 50% of the spousal benefit of his full retirement age. I would have you do that at 67, which would give you about $800 a month. So you would get approximately $2550 a month starting when he is 68 and you are 67. Given that he wasn't going to claim, let's just say till 70, that's two years of payments, that you wouldn't have been getting neither of you cause you have to claim spouse has to claim, Linda, in order for you to get a spousal benefit. Therefore, in those two years that would be close to $61,000 of money that you're entitled to that you wouldn't have claimed.

Suze: I don't know. I think that's a big difference. And if I were you, that's what I would go for. Did that all make sense to you, KT?

KT: I think that it's smart that they 68 and 67, go for it. 61,000 is a lot of money in two years.

Suze: Yeah, and really if you look at the difference between what they would have gotten. No, it's not worth it in my opinion.

KT: They do better off doing what you just said,

Suze: I think so, but you should always double check. All right, next question, KT.

KT: Suze, my final question from Sheila. Hi, Suze, thank you for the Roth info. I'm a little confused because I heard you say that if you have pre-tax money in any retirement account, then don't do a backdoor Roth, but we have 401ks and 403Bs. So does that mean we shouldn't do a backdoor Roth or were you just referring to IRAs with tax money?

Suze: Now, I already answered that on this podcast, KT. What's the answer? Don't look at me like that.

KT: No.

Suze: So the answer is what?

KT: The answer is that

Suze: were you just referring to IRAs?

KT: So, so she has 401ks and 403Bs. Were you just referring to IRAs? Yes, you were. You were referring only to IRAs.

Suze: That's right. Good. So it wasn't. No, it was, yes, ding ding.

KT: I meant no, she can't do the other two.

Suze: Yeah, no, it's don't worry, any money you have an employer sponsored plan. I don't care what kind of money it is in there, then that doesn't count for the pro rata backdoor IRA. It's only traditional IRAs, IRAs, SEP IRAs, simple IRAs, anything that's an individual retirement account.

Suze: Alright, KT, I did it.

KT: You did it, Suze. That's a wrap, and everyone, I want you to just remember three things.

Suze: What are they?

KT: People first, God, then money, then things.

Suze: And if you do that, stay safe, stay strong, stay healthy. Oh, then together we really will rise. bye bye.