401k, Credit Cards, Debt, Divorce, IRA, Loans, Marriage, Social Security
November 07, 2019
Listen to Podcast Episode:
In this rapid-fire Ask Suze Anything podcast, we hear questions from Women & Money listeners Annun, Sonia, Annie, Nicole, Anonymous, Tara, Maureen, Justin, and Chelsea.
Welcome to another edition of Ask Suze Anything. This is where you write in to AskSuzePodcast@gmail.com, S-U-Z-E, with your questions and if chosen, I will answer them on this podcast. Today, I just want to do something a little bit different, which is kind of like rapid fire. How many questions in about 25 minutes or so, can I get through rather than into these long explanations or answers to the questions that you normally write in? So I thought, let's just try that for today.The first one is from Annun. What are your thoughts on gold and silver IRAs? I'd like to roll over part or all of an old 401k into a gold or silver IRA.Annun, you don't need a special IRA that's just for gold or just for silver, where it actually buys the physical metal. No, you can simply roll your money over into a traditional IRA or, if you want to pay taxes on it, into a Roth IRA and buy exchange-traded funds that invest in gold or silver. I think that is far better than owning the precious metal itself, because precious metals when you actually physically own the precious metal and you want to sell it, it has to be assayed, all these things. Just keep your life simple.Next question is from Sonia. I will be 62 next month, but from social security, I will only get about $300 a month. Since I won't get that much, is it best to wait until I can get more or just go ahead and pull it out now? What are your suggestions?Listen, at $300 a month, $500 a month, $1000 a month, $1500 a month, I don't care what the amount is. If you are healthy and you know you're going to live a normal life span, which could be until 80, 90, 100 years of age, you always must wait, in my opinion, until at least full social security age, which in your situation would probably be 67. But I really would love to see you wait until you are 70. Why? Because if you just wait from 62 to 70 you're going to get approximately 76% more per month. It is worth the wait.This one is from Annie. Hello, Suze. I'm in a lifetime committed relationship with my long term sweetheart, and we are not married. Do I need to do something else besides just put it in a will to make it easier for him should I pass before he does?Yeah, Annie, you absolutely should. I've said it over and over again. If you leave something, especially a piece of real estate that has a worth in it: $100,000, $200,000, $300,000 whatever it is, the fair market value of it, it's going to have to go through probate. You did not tell me what state you are writing from, but some states have statutory probate fees. If this were in the state of California and the house was simply worth $200,000 or $300,000, it could cost him $20,000 or $25,000 to go through probate. So the best way to do this, if you are going to keep this home in your individual name, is to create a living revocable trust to help for your benefit while you're alive and his benefit after you have died. On your death, two weeks later, it's his, no big deal, no probate. I've done many podcasts now on living revocable trusts. And if you look in the description section of this podcast, there is a link for you to my Must Have documents. The package will cost you $69 for over $2500 worth of must-have documents; a deal of a lifetime.Next one is from Nicole. Hi, Suze. My husband and I have a combined credit card debt of $17,000 at 23% interest. Would you recommend that I take out a $20,000 loan from my 401k? I saw on your website that you recommend transferring our balances to one card that has zero interest for a year. I'm just trying to see if this is a better alternative.Listen to me, Nicole. If you have a good credit score, a good FICO score, and you can qualify for a 0% interest rate on a credit card where you could do a balance transfer at a 0% balance transfer fee, because it's not just are they going to guarantee you 0% for a year and a half, 2 years, whatever it is? Are they going to charge you a fee to transfer your balance from the credit cards you have to theirs? And if they are, then you have to be careful, because that's not the type of credit card I would want you to get. I'm assuming, however, that you might not have a good credit score because you're paying 23% interest. And just in case you don't have a good credit score, which, by the way, would be about 760 or above on the FICO credit score model. Then, if I were you, I would not be taking a loan under any circumstances from my 401k. Because remember, if you get sick, if anything happens, if you lose your job, that loan is due and payable, probably within the month, and if you don't have what it takes to repay it, it will be taxed to you as ordinary income in that year. Got it? And a possible penalty for you, depending on your age. So do not do that. I would want you, however, if you have a bad credit score, you're not taking a loan from your 401k, you don't qualify for a 0% interest rate credit card with a 0% balance transfer fee. I would want you to contact NFCC or go to www.nfcc.org. They are a debt management program company that will hook you up with a company near you where you will pay them. They will pay your credit cards. They have a deal with the credit card companies, they're non-profits. They will not ruin your FICO or credit score at all. And usually they can lower your interest rates down to almost zero. It'll cost you maybe $10 a month or whatever they charge you, and they will put you on a repayment program so that in five years you will be out of debt. That's what I would do.This one is from somebody who doesn't want me to use their name. Suze, what do you do if you co-sign for a relative's student loans, and now they are late every month with the payments? I've begged this person to refinance, but now this person won't talk to me. And then again, she says, please don't use my name. Or he says, please don't use my name, although I see the name so it's a she.First of all, I would use your name. I would want this person to know that I'm pissed at them, that how dare they do this to me when I stepped in and I helped you when you needed help? So the problem is, however, is once you co-sign for anything, it doesn't have to be a student loan, it can be any type of loan, you are on the hook for this loan. And the fact that you co-signed means that it's a private student loan because otherwise, you wouldn't have had to co-sign for it. And that is the worst kind of loan to ever co-sign for because student loans are not dischargeable in most cases, like 99.5% in most cases, in bankruptcy. So if they do not pay, guess what? You are going to be on the hook for it. So if this person isn't speaking to you, this person has no incentive whatsoever to refinance because they know that if they don't pay it, you are going to be the one to pay it. You're not going to like this answer, I can tell you this right now. You better start saving up to pay that student loan. And if they've stopped paying it, and you can tell by checking your credit report, then you best just start paying it because the student loan company will absolutely just let this go into default and $10,000 will turn into $20,000, will turn into $40,000, will turn into $80,000, $160,000 and then they have the legal authority to garnish your wages, to garnish your social security check, to do all kinds of things.So, you can't let it get that bad. Just because they're not talking to you doesn't mean that you don't deal with this situation on your own. So if you have to, I would absolutely look into this and start paying. And if this person happens to own a piece of real estate, happens to own anything sometime in the future, you just might want to look into putting a lien on that item. So eventually, they have to do what? Pay you back. You might even want to try to take him to small claims court or at least threaten that way. But I would stop being nice to them, I would stop begging them, I would deal with this situation that is absolutely going to end up being your total responsibility.Now, before I go on to the next question, I'm just going to say this and I'm going to say it again. If I had a top 10 list of the number one thing you must never, ever, ever I must really mean that because I just used three never, ever, evers. Never, ever, ever, whatever I'm saying, anyway, you must never, ever, ever co-sign a student loan for anyone. I don't care if they're a relative, I don't care if they are a close relative, a son, a daughter, a mother, a sister, a brother. I don't care who they are, even your husband or wife. If you co-sign a loan, you are responsible for that loan. If you have to co-sign a loan, that means the lending institutions do not think that the person that's borrowing money is going to pay it back. And those lending institutions want to make a loan because that's how they make the most money. So, if they don't want to make a loan to somebody, do not step in and take on that responsibility. I don't care how wealthy you are because you're not just going to lose money. What you just saw in this last question was that they have now lost their relationship. This person who wrote in is never going to forgive this relative for having done that. The relative, forever, is going to be embarrassed to be around the person who co-signed, and now we have a big mess. You want to keep your family together, don't co-sign a loan for anyone? Oh, and the person doesn't like you anymore because you didn't co-sign for them? Who cares? I rather them not like me now and me not have to be stuck with a payment and ruining my credit score and end up not liking each other anyway. Do you understand all this? I'd rather do that then co-sign, not like the person, and now be financially screwed. All right.Tara asked me, hi, Suze. Can I contribute the maximum amount to multiple Roth IRAs? If so, would it be better to max out multiple IRAs and only contribute 5%? My company only matches up to 5% of my TSP, which is a thrift savings plan.So this person probably works for the federal government. Tara, no, listen to me. I know what you're thinking, you can open up multiple Roth IRAs that each has a maximum on them of $7000, or about that, let's just say. So, therefore, if you are to open up multiple ones, then what? Then you can contribute up to $21,000 because you have three. No, it doesn't work that way. Let's just say the maximum that you can put in is $7000 a year. You can open up three, four, five, you could even open up seven different Roth IRAs, but you wouldn't be able to put in more than a total of $7000 between all seven Roth IRAs. So, you'd have to put in, let's say, $1000 in each. Why would you do that? Some Roth IRAs where they're held, you have to pay a custodial fee. So if I were you, I would open up one Roth IRA. Just make your life simple and contribute the max to that one Roth IRA. Obviously, contribute up to the point of your match in your TSP. Hopefully, you have a Roth TSP and then you go from there. If you have even more money to contribute, you can contribute the max If you want, up to $19,000 or whatever it is, depending on your age to a Roth TSP. So it is essential that you understand the rules and how it works.The next one is from Maureen. Hi, Suze. What is the purpose of rebalancing my 403b? I'm thinking I had better rebalance it and add more bonds to my portfolio. My money is in retirement year-based funds that are heavier in stocks, a lower percentage in bonds. I'm 53 and was late to start my retirement savings. So I wanted to assume more risk in hopes of a higher return. Now, I'm worried about next year. Thank you.Listen, Maureen, you are 53 years of age. I have said over and over again, it is really important that all of you think about your retirement age as being 70. That's what I would like you to target. If you could just wait until 70 in most situations, you would be so much better off. So since that would be 17 years from now, I would not be rebalancing my portfolio to go heavier in bonds than in stocks, because the problem with bonds is this. If interest rates do happen to go up because you and your TSP would not be buying individual bonds, you would be buying bond funds. If interest rates in the future go up, the value of bond funds goes down. If the market goes down, which it will eventually, you should be so happy. At the age of 53 if you just continue working and contributing monthly into your retirement account, the lower the market goes, the lower the price of the shares that you're buying go, and the more shares your money purchases. Therefore, later on, 10 years from now, 15 years from now, whenever it is, markets will always return. They'll go back up again eventually, and the more money you will have. So stop worrying and just stay consistent. Consistency is the key to a great retirement, not starting to invest, stopping to invest, withdrawing your money, selling, buying. Consistency in good quality investments.The next one is from Justin. Hello, Suze. Big fan here. What are your thoughts on placing dividends from MLPs, which are master limited partnerships, REITs, which are real estate investment trusts into IRAs? And which IRA is best? Also, are there legal ways around taxes for reinvesting dividends?Well, here's the thing, Justin. If you, first of all, which IRA is best? Hands down, it is known that I want all of you to be in a Roth 401k, a Roth 403b, a Roth IRA or a backdoor Roth. You know that's what I love. And if you don't know that Justin, listen back to the past podcasts where I talk about the advantages of Roth IRAs over traditional IRAs, Roth 401ks and 403bs, and TSPs over traditional 401ks, 403bs, and TSPs. Big difference, if you have a Roth then you're reinvesting dividends, number one. You don't have to worry about it because there are no taxes on a Roth. The truth is, there are no taxes in a traditional either. So in an IRA, when you're reinvesting dividends, you're not going to pay taxes on it as your reinvesting those dividends. However, when you go to take the money out in a traditional IRA, which is pre-taxed, that's when you pay taxes on it at whatever tax bracket is in effect at that time. So the best IRA is a Roth IRA and stop worrying about, are there legal ways around taxes for reinvesting dividends? Because, you know, the next question is, are there legal ways around paying taxes at all? If you just pay the taxes that you owe, if you don't worry about it, If you do not get tricky with your money, you will live a really happy life where you don't have to look behind your back all the time to see if the I.R.S. is going to catch you as to what you are doing that isn't right.And for the last one today of the rapid-fire Ask Suze Anything, did you like this one? Do you like it better when I go fast? Let me know. This one is from Chelsea. You have mentioned that if your husband or wife takes out a credit card while you are married, then you're still liable for that debt. I'm in the middle of a divorce and want to make sure that everything is taken care of so that nothing can come back on me. So, does that mean that we need to pay everything off with the zero balance and close all credit cards? You bet it does, Chelsea. If you take out credit cards in joint names while you are married, and now you're going to get divorced, one of you could claim bankruptcy than the other one would be absolutely liable for the debt on that card. What is the only way you should do it if you are getting divorced? Now, a lot of you will say, I'll just close down the credit card. You cannot close down a credit card if there is a balance on it. Listen to me closely. Therefore, when you are getting divorced, you have got to make sure that all debt, all credit cards, are paid down to a zero balance and then the card can be closed because if there's a balance on it, somebody's got to be paying those monthly payments, which is why the card cannot be closed.How many times have I gotten emails from women and men who got divorced, thought everything was fine, thought they had closed down the credit cards. And then a few years later they get a knock on their door that says, your spouse claimed bankruptcy. You legally owe us X amount of money, and your credit score has been ruined besides that. So do not make that mistake.There you go. Another version of Ask Suze Anything. Again, if you want, send in your questions to AskSuzePodcast@gmail.com. And like I said in the beginning, if chosen, it will be answered on this podcast. See you soon. In providing answers neither Suze Orman Media nor Suze Orman is acting as a Certified Financial Planner, advisor, a Certified Financial Analyst, an economist, CPA, accountant, or lawyer. Neither Suze Orman Media nor Suze Orman makes any recommendations as to any specific securities or investments. All content is for informational and general purposes only and does not constitute financial, accounting or legal advice. You should consult your own tax, legal and financial advisors regarding your particular situation. Neither Suze Orman Media nor Suze Orman accepts any responsibility for any loss, which may arise from accessing or reliance on the information in this podcast and to the fullest extent permitted by law, we exclude all liability for loss or damages, direct or indirect, arising from use of the information. To find the right Credit Union for you, visit https://www.mycreditunion.gov/. Interested in Suze's Must Have Documents? Go to https://shop.suzeorman.com/checkout/cart/index/.
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.
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Credit & Debt, Saving, Investing, Retirement