Children And Money, Financial Advisor, Interest Rates, IRA, Podcast, Retirement, Taxes
April 04, 2019
Listen to Podcast Episode:
On this week’s Ask Suze Anything, Suze wants you to get things right!
April 4, 2019. I still love that theme song so much it's not even funny. Together We will Rise by Effie, you can get it on Spotify. All right, I want you to get things right. And it seems that even though you listen to this podcast, you only listen in with one ear! Or it's going in one ear and out the other. You know, let me tell you a story. I'll never forget. I happen to be in Washington D. C., and I got an invitation to come into the White house and this is one President Obama was President. And I'm finding myself and KT we are standing in the oval office. I said, I can't even believe it, oh my God. And President Obama is talking to me, and he's asking me to speak to somebody and I say to him sir, it would not do any good because anything I say would go in one ear and out the other. I can't believe I said that to the President. Anyway. That is how I feel sometimes when I'm talking to you, I am telling you to do something, and it goes in one ear and out the other. Because you write me an email and your email scares me. It scares me because it is possible because you didn't really listen closely, you are going to do the wrong thing. So on today's Ask Suze Anything, I am going to tell you everything that I can get in in a short period of time and I'm going to be doing this more and more to just make sure that you get it right. The first thing that upsets me is Jessie writes in. And she says, I heard you say on your podcast that I should not list my living trust as the primary beneficiary for my Roth IRA since I don't have a spouse or children. Do you have a suggestion as to who the beneficiary should be. Are you kidding me, Jesse? Are you kidding me? Listen closely, if you are married, your spouse has certain privileges when it comes to your retirement accounts . You can take over their retirement account as if it was your own retirement account. You don't have to start making withdrawals. You can do anything you want with it. But that is only a privilege a spouse has. So if you are married, and you have a living revocable trust which all of you should have, and if you don't know what I'm talking about, go back and listen to one of the podcast that deals with that that I've done for you, your primary beneficiary should always be your spouse. Your contingent beneficiary should be the living revocable trust. If however, you are not married, your primary beneficiary of any retirement account needs to be the living revocable trust. Do you understand that? That is how it should work. Do not hear anything else. Do not do anything else. Just follow those directions. Got it Jesse? So Maria writes in and says, can we open an investment account for my children in their own names? They are both teenagers, 14 and 16. No, you cannot. And really, we need to think about that. Because when you open up money in your kid's names under a Uniform Gift to Minors Act account, when they turn 18 that money is theirs and you don't have any say over it. Also money that is in their name counts differently towards financial aid than money that happens to be in your name. So you really need to think twice about putting money in your children's name. And this is the reason why, really. How many times have I seen little Johnny or Judy angel turn out to be Johnny or Judy devil. How many times have you written in and have you said to me Suze, I love my kids so I opened up a Uniform Gift to Minors act Account for my children. I have all this money in there. But somehow my kids in high school got addicted to drugs, are smoking this, or doing that. And now here they are and they've turned 18, and they know that that money is theirs and they want it. And how can I legally not give it to them? And the answer is you can't. It is their money. It is their money. So now you've given them money to possibly get themselves into further trouble. So can you just wait? Just if you have little savings accounts for them fine. I don't have a problem with that. Just have money for them in your name as they get older not their names, not in a UGMA account. If you want to open a 529 college savings program for them, fine. I don't have a problem with that. Because you can take out that money anytime you want. You would have to pay 10% on the earnings of that money if you don't use it for a qualified educational expense, but at least you still have control over that money. So just be careful and even though I know you want your girls to be financially independent, as Maria says in her email, just be careful here girlfriend. Right, next thing we have to seriously clear up. You need to understand that when you have a lump sum of money in a 401k, or you've gotten a lump sum of money, whatever it is, you cannot put that directly into a Roth IRA. Do you hear me? So if you have now retired, or you're leaving your job, and you have money in a traditional 401k or 403b Or TSP that you have never paid taxes on, you cannot roll that money over, especially if it is a large sum of money into a Roth IRA or Roth IRA rollover because if you do, you are going to owe taxes on 100 percent of that money. What are you crazy? You also, if you have a 401k plan at work, that has money in it. Again, a pretax to traditional 401k plan. You cannot transfer that money, all of it to, a Roth 401k at work because you will owe ordinary income taxes on that money. It is your new contributions, your new ones that you can put into a Roth 401k. But be very, very careful. Do not transfer money. Especially again if there's a lot of it, if you have 2,000 or whatever, okay. You have 10,000, 20,000, do not transfer that money at work or if you retire whatever into a roth 401k. Why am I saying this to you? Because Jamel writes me and says, I have an investment of 101,000 in a 401k. When I previously worked my plan is to put the 101,000 into a Roth IRA then take $60,000 from the Roth IRA to pay off my student loans and car loan. I heard you make this recommendation for another caller on the podcast. So I wondered if the same advice applies to me? No, it does not. You've never heard me make that recommendation ever, ever, ever. You cannot take that $101,000 from a previous employer and put it into a Roth IRA rollover. If you do so, if you do so, you're gonna lose almost $50,000 of it to taxes. You can not do that. So what you could do, is you can do an IRA rollover with that money to a traditional IR rollover, and little by little convert that money into a Roth IRA. But only convert the amount of money that won't put you into a higher tax bracket. So no, you cannot do this plan. You cannot do this. The government is not going to allow you to take money that you have never paid taxes on, and put it in an account that is tax-free. That makes absolutely no sense. So Jamel, you cannot do this. Nor should anybody else. Alright, next. You think I'm, got my goat up today? Is that a saying? Is that such a thing got your goat up? I don't think that's a saying. Sometimes I make up sayings, do you know that sometimes they're really great sayings, sometimes they're just stupid like that one. I got that. What is that saying? Anyway, who cares now? Many of you have asked this question, so I'm not just gonna contribute it to just one of you because a lot of you are asking it. And here's what you are asking. Suze since you don't like financial advisors that charge commission, I found a financial advisor who charges a registered investment advisory fee. I met with them. I love them. They spent three hours with me, and their investment advisory fee is 1.75%. What do you think about that? I'll tell you what I think about that. I think that is highway robbery. Highway robbery. In my opinion, there is not one investment advisor out there that is worth one and 1.75% a year to manage your money. Are you kidding me? A registered investment advisor is usually somebody who manages your money for an overall fee. So if you give them $100,000, they charge you a percent or whatever it is of that money to manage it. They don't partake in commissions, the theory being, the more money they make for you, the more money they make for themselves. The less money they make for you, the less money they make for themselves. And I happen to like that. I think that is a great way to invest. I am not a fan of commissions on any level. Especially today, when you can buy your own mutual funds, your own exchange traded funds, and not have any fees on them whatsoever. Again, Fidelity has no fee, no-load mutual funds that are wonderful. Wonderful. And you are asking yourselves, oh Suze. 1.75 percent doesn't sound like a lot. 1% doesn't sound like a lot. Oh yeah, it is a lot of money. Just let's take $20,000 as an example, $20,000 over 30 years. A 1% difference in management fee will cost you about $25,000. And that is just at a four or 5% return. Are you kidding me? So yeah, it is a lot of money over time. Your key to growing money is to invest it, but pay less for investing. The expense ratios within a mutual fund, the investment advisory fees that you pay a person make a serious difference. So let's just get this right. If you're going to use a registered investment advisor, I personally will not pay more than three quarters of a percent for investment advice. I wouldn't do it. Number two. If you're going to use a registered investment advisor, you need to make sure that that person, in my opinion, is not purchasing mutual funds for you. If you are paying an advisor to invest your money, then you are paying somebody who is picking individual stocks for you, managing your money. If they're simply putting you into mutual funds, then the person managing the mutual fund is the portfolio manager. And almost every single mutual fund has an expense ratio, and that is the money that goes to the portfolio manager, as well as the advertising and everything on that fund. If you are paying 1.75 percent to an investment advisor, and they put you in a mutual fund that charges you even half a percent, you are paying almost two and a quarter percent to have your money managed. Again, highway robbery. So you want to be with an investment advisor that only charges you an investment advisory fee where they are purchasing individual stocks for you. Now. If you don't have a lot of money, then you can't buy individual stocks. Again. In my opinion, you should not have more than 4% of your investable assets. You write this down! You should not have more than 4% of your investable assets in one stock. So that means you should have about 25 stocks to have true diversification. And not 25 stocks all in one area. 25 stocks in different areas. I personally have almost over 100 stocks. I do not own one mutual fund. But for those of you who don't want to buy individual stocks, who don't have a lot of money, then simply by a no-load index fund. Go to Fidelity, open an account, and look into their no fees index funds where there are no fees. A fee makes a big difference inside the mutual fund, as well as outside the mutual fund. One other thing that I want to say about this. If you have money, and you want to buy bonds, municipal bonds, which are bonds that are tax free, bonds usually come with a commission built inside of the price of the bond. So no bonds should be held in an account that has an investment advisory fee on it. I have a lot of municipal bonds, but I have two accounts. One account for my stocks, another account for my bonds. My bonds don't have any fee on them, because again, when I purchase them, that fee is built in. If you have a registered investment advisor who is charging you an investment advisory fee and in your account, you have municipal bonds, and stocks, and you're paying that 1% or whatever on all of that, you need to call this person up, and you need to separate those two accounts out. Because you do not want to pay a fee on something that you're not gonna change. Because you know, that you keep municipal bonds until they mature. You do not trade them. These are things you need to know. These are things to keep your money safe. What is the key to building wealth? The key to building wealth is for you to make sure every single penny, every penny has a purpose. Do not get lazy with your money. Do not just believe, oh, this is what I need to do. Make a checklist for yourself. Know what you should do. Listen to this podcast over, and over again. Listen to other podcasts in the area that you're interested in that I've done for you. But just don't think you know what I've said. You make sure that you know what I've said. I want you to check and double check. I want you to be clear and crystal clear. Because you cannot afford to make a mistake. And just because you think you've heard me say something, it is obvious by the emails that I am getting that you have not listened clearly, and that concerns me. Makes me think oh my God, maybe I'm better off not saying anything. What are they doing when they're listening? You need to take notes. In fact, I think you should all start a Susze notebook. A Women & Money notebook. Where you do the headings, and you write down what you think I've said, you go back and listen to it, and you've verify. And if you're not sure, then send an email and you know when you have a question all you have to do is send it into Ask Suze podcast. That's S-U-Z-E at gmail dot com. And you know you know that I answer many of you directly. I call many of you directly. I'm not sure how much longer I'm gonna be able to do that because this podcast has expanded in terms of the emails that we're getting so dramatically. It's not even funny. So who knows when I can't read them all anymore. You know, there was a time during the Suze Orman show that I was getting like 10,000 emails a month or whatever it was. Are you kidding? I love that. But there was no way possible I could do that. So we are still in our infant stage. So if you have a question, let me hear it. I also, I'm asking if you could please do me a favor, could you go to Apple podcast and simply give this show a star rating? If you like it, If you don't like it just do what is true for you. As I have said before, the more stars it gets or the more ratings it gets, the more people will notice it, the more we can make sure that all of you are really clear, are really clear on the advice that I am giving because there is only one goal that this podcast has and that is to make sure that you are strong, smart and secure. And for that to be true, you have to be crystal clear on the advice that I am giving to you.
JUST LAUNCHED! Join Suze’s Women & Money Community for FREE and ASK SUZE your questions which may just end up on her podcast!
To ask Suze a question, download by following one of these links:
Want to begin your Will & Trust? CLICK HERE for Suze’s $99 podcast special offer of her "Must Have Documents.”
Help spread the word about the Women & Money podcast by telling your friends and giving a star rating on Apple Podcasts.
Credit & Debt, Saving, Investing, Retirement