FICO, Home Buying, IRA, Roth
April 28, 2022
Listen to Podcast Episode:
On this podcast of Ask Suze & KT Anything, Suze answers questions from listeners about unmarried IRA contributions, gifting Series I Bonds, delaying RMDs, buying a house in cash and much more!
Suze: [00:00:34] April 28, 2022.
Suze: [00:00:39] Today's a great day for you, isn't it?
KT: [00:00:41] I'm so excited, everybody. I can't wait for this.
Suze: [00:00:44] Tell them why.
KT: [00:00:45] Okay. So after we're done with the podcast and I have my breakfast, we're going to be starting the building of our garden on the island. It's going to be a full enclosure because we have.
Suze: [00:00:58] Finishing the building that you started.
KT: [00:01:00] Yeah, I'm so excited. It's a huge garden. I'm growing all kinds of vegetables and hopefully some fruits and we're just I'm thrilled. I have to enclose it because of the iguanas. Iguanas come in at night. They eat everything, everything down to sticks. So you have to put like a screen enclosure over anything you don't want them to eat.
Suze: [00:01:22] So we started building this garden in.
KT: [00:01:25] Two months ago.
Suze: [00:01:25] No, in January, KT. In January.
KT: [00:01:29] More than that. Right.
Suze: [00:01:30] And it's going to be something. And in the next two days, it will be complete ready for planting. Welcome, everybody, to ask Suze and KT anything. And this is where you write in you ask a question and you write in to ask Suze podcast at gmail.com or you go to the Women and Money app at either Google Play or Apple Apps. Download it, you can ask there. The app has all kinds of things on it now that I don't do on the podcast when I need to tell you something, so you might want to do that. Then if your email is chosen by Ms. Travis, it will be answered here on the podcast. KT, I want to say something, though, about the emails that are coming in. Okay. All right. And maybe you've noticed this as well. I love all of you so much. And I get that these times are very confusing. I get that. But as much as I love you, I cannot be your own personal financial advisor. All I can do is advise you in generic terms on this podcast as to what I think you should do and what's going on in the economy and with your own personal finance possible situations. But it can't be directly for each one of you and so many of you now. And when I say so many, I mean thousands of you are writing really long emails with every bit of your financial information on it, every exchange traded fund that you own, mutual funds, what's in your retirement accounts, and then you end it with, Can you tell me what to do?
KT: [00:03:12] Which makes her crazy because she knows what to tell you what to do. But we don't have enough hours and days. And Suze Orman s to answer that.
Suze: [00:03:21] The truth is, KT, I can't tell them what to do because I don't know enough about their personal situation.
KT: [00:03:27] So that's why this stack in front of me is really short and sweet and it's single focused. Meaning there's one question. Yeah. Many of you say, Oh, wait, and now after that, can I do this?
Suze: [00:03:41] Yeah.
KT: [00:03:42] So one question, please.
Suze: [00:03:44] And I just want to say that when I do choose to personally answer your question and I send you an answer, then be happy that I answered one of your questions. That's not for you then to write back and say, I have three more questions to ask you, so I want to spread it around to everybody that's writing in. But I just ask you to take that into consideration. All right.
KT: [00:04:11] Share the love. First question is from William. My daughter is a stay at home mom. She isn't married, but they have a house together and have been together for about ten years. Suze, can she contribute to an IRA?
Suze: [00:04:26] Oh, I should have made that your quizzie.
KT: [00:04:28] So want me to try to answer it?
Suze: [00:04:30] Yeah. All right. This would be your beginning of the podcast quizzie.
KT: [00:04:35] Okay, everybody, as far as I recall, an individual retirement account is contributed with money that you earn. Is that correct?
Suze: [00:04:46] It's true.
KT: [00:04:46] Unless she's a stay at home mom, which means she isn't what you said. Unless what?
Suze: [00:04:53] Remember, there are also non working spousal IRAs.
KT: [00:04:57] But spousal. Does that mean married or what?
Suze: [00:05:01] What does a spouse mean?
KT: [00:05:03] A spouse is considered someone that you're married to.
Suze: [00:05:07] So in this particular situation, can they?
KT: [00:05:11] Cannot.
Suze: [00:05:12] She cannot because she has no earned income as that.
KT: [00:05:14] And she's not married.
Suze: [00:05:16] To this person.
KT: [00:05:17] To her partner.
Suze: [00:05:18] Yeah. Ding, ding, ding, ding, ding, ding, ding.
KT: [00:05:20] I got it right.
Suze: [00:05:20] Oh, you got it right.
KT: [00:05:22] Oh, good. I knew that. I remembered.
Suze: [00:05:24] That. All right. So, however.
KT: [00:05:25] William, she cannot contribute.
Suze: [00:05:27] Yeah, William, she can't. However, if. She were ever to get married to him. There is something known as a non working spousal IRA which allows the spouse who is not working to open up an IRA or a Roth IRA based on the income of her spouse or his spouse.
KT: [00:05:49] Okay. Next question is from Latisha. Suze Series I bonds... Are there any considerations or watch outs when getting one for a minor or opening one for a minor child? So. Or gifting it?
Suze: [00:06:05] Nope. There's no downside, KT. No downside at all. Go ahead and do it, girlfriend. All right.
KT: [00:06:10] Great. Next question is from Polly. I love this question because so many people are still stuck in this rut, as I say. Hi, Suze I made a stupid mistake of buying a timeshare in Florida. The maintenance fee is getting higher each year. I want to get out of the timeshare, but it would cost me about $5,000 to get out through an exit company if I do not pay the maintenance fee. Would my kids be liable for this debt when I die? I do not care if it affects my credit. Thank you for answering this question. She's mad. Polly wants out.
Suze: [00:06:53] Polly, if you want out of this debt to a timeshare, which was obviously not the wisest move that any of you could ever make, by the way, but that you made. Polly. The problem is, if you just stop paying, one thing you're not going to ever get out of is a bad FICO score.
KT: [00:07:16] She said she didn't care.
Suze: [00:07:18] Well, I'm telling you, you better care, because in the same way you didn't care when you got a timeshare that you never could have gotten out of if you had done your research on it, you might want to do a little research on how everything might get more expensive for you when you have a low FICO score. So first of all, that is just ridiculous. However, what you need to know everybody, including Polly. Timeshares usually include when you sign for them in in perpetuity clause, which means they will go on forever. So you can be on the hook for this for the rest of your life. Just so you know, a lot of times when you buy a timeshare, they want to say to you, why don't you put your kid's name on the timeshare as well so that they could use it and they do that not to be generous to you and your children, but to make it so that if you die, your kids are on the hook as well. So if you're going to be ridiculous enough to buy a timeshare and that was a nice word I used there, by the way. KT, you know the word I wanted to use.
KT: [00:08:30] You know, I know.
Suze: [00:08:32] Anyway, whatever you do, do not put your kids names on the deed. Now, your question to me was, if you do this. Will it pass down? Meaning you stop paying, will it pass down to your kids? Well, the thing is, if your kids inherit the contract, then they will be responsible. So if you left it to them and they decide they want it, they're going to be responsible, just so you know. But remember, they don't have to inherit something. They can disclaim it. So even if the court say this is your kid's, just tell them to disclaim it. You they don't want it and then they won't be responsible for it. But can we all just learn not to do timeshares, everybody. Don't do them. Don't do them. Don't do them.
KT: [00:09:23] So, Suze, next question is from Maria. Is there anything I can do to delay RMDs that's required minimum distributions? Everybody. How can I protect?
Suze: [00:09:35] And what age do they start? KT.
KT: [00:09:38] I'm 72, I think 72. How can I protect my IRA savings from high taxes?
Suze: [00:09:46] The only thing, Maria, you can do to delay our RMDs is to convert your retirement account over to a Roth IRA, because in a Roth, there are no RMDs ever. Which is why I've told all of you forever. Can you just do a Roth 41ka Roth 403 B? Forget the tax that you're going to pay. Now, forget it. Everybody just get into a Roth if you can. That is the best way to get rid of RMDs. Can you delay them? The only way that you delay them, by the way, is if you're working, let's say, full time and you have a41k plan, your RMDs don't start while you're working full time, even if it's after the age of 72. But besides those things, not a lot that you can do. All right.
KT: [00:10:42] Okay. Next is from Christine. Hi, Suze and KT. I'm so happy to hear Suze 's strong voice back.
Suze: [00:10:51] It's still a little weak, don't you think?
KT: [00:10:53] No, it's great. It's good. Me, too. Christine, I'm happy. So here's her question. About a year ago.
Suze: [00:10:59] Asked me if I'm happy.
KT: [00:11:02] Are you happy?
Suze: [00:11:03] Not quite.
KT: [00:11:04] All right. She's getting there every. All right. So, Suze, I purchased $1,000 of arc in my Roth IRA about a year ago. I believe it was a tech fund that you liked at the time.
Suze: [00:11:14] ETF. You bet.
KT: [00:11:16] It's down less than $500 now.
Suze: [00:11:19] Oh, yeah, it's down almost 50%. Yeah.
KT: [00:11:22] Ooh.
Suze: [00:11:23] I underweight. You don't even have to go on because really, she wants to know what to do. Should she sell or what should.
KT: [00:11:29] I do or will it go away? Well, it dwindled.
Suze: [00:11:31] It's not going to dwindle to nothing. Here's what you need to understand, Christine and everybody else who purchased a ARKK. Is that Kathy Wood? I still think Kathy is absolutely brilliant and the truth of the matter is her method is a five year hold. It is not something that you purchase to go up in the next year or down or whatever. It's over a five year period of time. There are a lot of people who disagree with the stocks that she's buying. They were all on her bandwagon when the when it was the number one ETF out there that just skyrocketed a year ago. And now that it's down so much, they're all abandoning her, which is what people do in this industry. I, on the other hand, am sticking with her. I like her. I like her thought process. I've listened to every talk that she has given. Do I think it's going to take a long time for ARKK to return and for you to eventually make money? I do. However, I would hold on to it at this point in time. If interest rates continue to go up and certain things continue to happen in the United States, like it seems like it's happening, recession may happen, whatever it may be, it's going to be a while. But if you can hold on for at least five years or longer, I think you'll be happy that you did. We'll have to see. I just want to say, have I not always said money that you need within a five year period of time? Less than that is not money that belongs in the stock market, especially into speculative ETFs such as ARK. But I would hold it. Out of all the things that I've told all of you to purchase, if you averaged that in with XLE and the other stuff that we've done, you would overall be okay, really, you wouldn't be devastated, but I still like it and I'm holding on to it. And that is a totally contrarian viewpoint, just so you know.
KT: [00:13:44] Do I have any?
Suze: [00:13:45] No.
KT: [00:13:46] Okay.
Suze: [00:13:46] But, KT, the truth is, you don't have any ETFs. Do you have many of the stocks that are in Kathy Wood's ETF? You do.
KT: [00:13:56] Hmm. Okay.
Suze: [00:13:57] All right. Just so you know and so do I.
KT: [00:13:58] I have individual stocks. So, Suze, this next email, I'd like you to really summarize for everybody because it's like three pages long. From Natalie, and it has to do with a car loan. So I'm going to let you take this over and give everyone a little short. This is what it's about.
Suze: [00:14:17] Too much for you to handle there huh KT?.
KT: [00:14:19] Way too much. It's like three pages, everybody. It's her whole history on this car loan.
Suze: [00:14:23] But then why did you choose it? Just out of curiosity.
KT: [00:14:26] Because I think you need to give people advice that are going to get in the same trouble. Everyone gets into this trouble, so tell them what they need to do.
Suze: [00:14:35] Okay. So basically this email question is from Natalie. Who at the time in 2018 was 27 years of age and says she was very naive and even though she only had a minimum wage job, what she did was she went out and bought a car that she really couldn't afford. But the car company, the loan company said, here you go, you can afford it. Sign on the dotted line. And she did. A few years later, actually, one year later, she couldn't afford it anymore. And so she turned it in. Now, when you buy a car and the car company has financed it and you turn it in. So I'm going to educate all of you right now as well. What the car company does, because you still owe them money is they turn around and they sell it. And it's really sad because normally, let's say the car was worth $8,000 at the time. They sell it usually to their used car lot people and they'll sell it for $4,000 knowing they can turn around and sell it for eight. But then you're responsible for the difference between what they sold it for and what you owed. And so it's a really horrible way to do it. Just so you know, everybody what happened to Natalie is that she ended up owing them approximately $4,000.
Suze: [00:16:05] After this, they said "pay me $70 a month until it's paid off." She made two payments and then stopped. Then they were harassing her. And then what happened is she made a deal with them to pay them $20 a month, which would take about ten or so years for it to be paid off. So here's the bottom line and Natalie's question. She currently owes them $3,257. And obviously, again, heard me speak on the podcast about the statute of limitations and how if she just did pay for this in four years because she lives in Oregon for on auto loans, it would be essentially dismissed and nobody could come after her. So she knows that since she's been paying it, she restarted the time clock. So the statute of limitations is not applying to her. So she's wondering, should she stop paying for this loan? Let it go into default. Wait for four years and then have it dismissed. She does say, though, she hates not playing by the rules because "I took responsibility for this, but I also just want to blow them off forever..." because she felt that they were preying on her when she originally took a loan that she could not afford. So the question becomes, "Suze, what should I do?" So here's what I'm going to tell you, Natalie.
Suze: [00:17:46] There are times when I will tell people to claim bankruptcy. There are times when I will tell people to absolutely, you know, don't pay it. You're past the statute of limitations. But these are people that are usually in a situation where they don't have the money to pay it or it is past the statute of limitations. It's not going to go to the original debtor because the debtor wants something is charged off. A collection agency pays for like $0.02 on the dollar in the hopes that they can get you to pay them something. But the original people that you owe the money to never get it, they're out. They're out. So depending on the situation, I may say, don't do it. Claim bankruptcy. You're past the statute of limitations. It doesn't matter in this situation, Natalie. You have been paying it, you owe it. You also have a job and you are making money. You are able to save money. You have money in a Roth IRA according to everything that you sent in. You have money and starting in a savings account and you can do this. So, girlfriend, you are absolutely to continue to pay this until it is paid in full.
KT: [00:19:08] And you'll be able to sleep at night. Natalie Well, this playing by the rules, she's doing the right thing and she learned a lesson.
Suze: [00:19:15] In this situation. You're doing the right thing. It doesn't matter what they did to you. You are not a victim to your circumstances. You created this situation with them voluntarily. And therefore, I don't care if you were 27, 57. I don't care your age. You knew what you were doing. You couldn't afford and you just wanted a new car and you got it. And now you're going to pay for it $20 a month. You can handle it. You can handle it, Natalie.
KT: [00:19:48] And you're.Young.
Suze: [00:19:49] Do not use this thing as a way to get rid of this debt.
KT: [00:19:53] It's not it's not a revenge. It's really a responsibility.
Suze: [00:19:57] It's not right on any level, Natalie. Don't do it in this particular situation. But again, there are situations where it makes sense. All right.
KT: [00:20:06] Go on. Okay. Next is from Mary. Hi, Suze. I have enough cash to purchase a home outright without having to sell my current home immediately. And I have enough for the remaining year of expenses. I have a FICO score of 765. Is there any reason it would be wise for me to take out a mortgage versus paying in cash? I would pay off the mortgage once I sell my current house. If paying in cash, then the sale of my current home would replenish my emergency fund. I have no debt. I pay off my credit cards in full each month. I have investments equal to the value of the home I wish to purchase. Those would not be touched at all. Thanks for your great advice, Mary.
Suze: [00:21:00] What would you tell her?
KT: [00:21:01] I'd say just buy the home, Mary. You don't get a mortgage. Don't do anything. Just buy it.
Suze: [00:21:05] But you have.
KT: [00:21:06] Pay for it outright.
Suze: [00:21:07] You have to tell her why, right?
KT: [00:21:09] Because you Can.
Suze: [00:21:09] No. Because, Mary, you already have exposure equal to the value of your home. You just said so invested in the stock market. That obviously is going all over the place and could seriously continue down here. And therefore, if I were you, I would buy the house outright, especially because interest rates to to finance it are at, what, five, five and a half, maybe 6% by the time you do this? Even after a tax write off, let's say you were in the 50% tax bracket, that would still be like 3% after taxes. So that's still a high interest rate that you would be paying. So why not just go into it right now, pay it for cash? We do not know what's going to happen. Will you be able to sell your other home? Well, we don't know what's going to happen in the future. And here's the one thing everybody that we don't know when we take out a mortgage, do we have the ability to continue to pay it? Just because you have the ability to pay it today does not mean that you necessarily have the ability to pay it for a long time. Things can happen. You can get sick. You can get in an accident.
KT: [00:22:33] Lose your job.
Suze: [00:22:33] Lose a job. Things can happen and your income stops. And even though you have an emergency fund, what if it lasted longer than a year or so? So do me a favor. Do yourself a favor. Just pay for it outright. Write a check, check.
KT: [00:22:52] Write the check baby!
Suze: [00:22:53] It feels so good to do that. So make your life easy and just pay cash and consider what a blessing it is that you can do that because there's very few people that can do that. Now, 95% of the people, I'm sure, always have to take out a mortgage. So you're one of the lucky ones. Stay lucky, Mary.
KT: [00:23:18] This is from Susan. Hi, Suze. I recently started following you, and I listened to one of your past podcasts regarding the benefits of a trust versus a joint tenant. Many years ago, my parents refinanced their home, and in order to help them finance, I was added on the loan. I was also added to the title as a joint tenant. What are the consequences if we now change the title? Back to my parents Revocable Trust, which they just created, and they list me as a beneficiary.
Suze: [00:23:57] Susan The first thing you need to understand is just because your parents created a living, revocable trust. That then listed you as a beneficiary. If they have not changed the title of the home from your names into the title of the trust. It's not in the trust. And it would be very dangerous to change it into the title of the trust if the trust doesn't include your name on it. And the reason being, the bank refinanced this house for your parents because of you. They couldn't qualify for it on their own. So they needed you on the loan to guarantee the loan. They also obviously wanted you on the title of the house. If there is still a mortgage on that house. Then you have to be very careful here because before you take your name off of the title, you've got to contact your bank and ask them if it's okay. Because if it's not okay with them and you go ahead and you do it, they have the right to absolutely call the loan so that it's due immediately. If there wasn't a mortgage on the home, then it's not that big of a deal. Truthfully, then you would simply go down to the county recorder's office and file a quick claim deed. But if that's not the situation and there is a mortgage, you first have to do what? You have to contact your lender and get their permission. Let's say there's not a mortgage on it, then all you do is you do the quitclaim deed and then your parents take that deed down where to a title company and change the title from their individual names into the title of the trust. Just that simple.
KT: [00:26:11] And make you the beneficiary.
Suze: [00:26:12] Well, she already is the beneficiary. But you just have to be careful, everybody. When you do a trust, you want to make sure that it's funded, that you transfer the asset into the trust. Otherwise, it's an empty trust. And you also want to be careful with putting your kids names on your homes as joint tenancy. There's all kinds of ramifications.
KT: [00:26:37] Rules and regulations.
Suze: [00:26:38] Rules and regulations KT.
KT: [00:26:39] That wraps it. Suze.
Suze: [00:26:41] Are you ready to go garden?
KT: [00:26:43] I am. I'm excited. Look, I'm very excited.
Suze: [00:26:49] You guys, you have no idea how KT talks about what she's going to plant her soil. Everything. She talks about it at least 4 hours a day.
KT: [00:27:00] I'm becoming a farmer.
Suze: [00:27:01] You are a little farmer.
KT: [00:27:03] I love it.
Suze: [00:27:03] But it's also so good to eat what she grows. All right, everybody. Until Sunday, there's really only one thing that we want them to remember. What is it, KT?
KT: [00:27:14] We want you all to be safe, super strong and very secure!.
Suze: [00:27:20] All right. See you Sunday. Bye bye.
Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
I have checked all the beneficiaries of every investment account and insurance policy within the past year.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.
Credit & Debt, Saving, Investing, Retirement