IRA, Retirement, Roth, Saving Money, Stock Market
May 06, 2021
Listen to Podcast Episode:
On this podcast of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners Lisa, Allisa, Beau, Catherine, Gabriel, Tammy, Kim, Ruth and Erin, selected and read by KT.
May 6, 2021. Did everyone have fun on Cinco de Mayo yesterday? Yes. Did you have any margaritas? No. Did you want to? Yes. I thought so. Suze never drinks any. Occasionally, she'll have a little sip of wine, but she doesn't drink. And I always ask her why. She said, I need a clear mind, KT have to remember all these numbers. KT right before we start. We have to address the fact that many people wrote in and said, where was KT on Sunday. So, we need to tell them the truth. It wasn't fishing. Why do we need to tell the truth? It was Sunday school and it was so complicated. There was no way, No, here's the truth. Everybody, come on KT. So, we got up early and we did a Suze school together. It was terrible, horrible. The worst we've ever done. The worst. It was so bad that and I was drinking. They would have laughed about the coffee part because she was kept slurping her coffee and I was like I can't do this, I can't do. It was the worst podcast we ever did. So bad that Suze actually sent hours together. And The 2nd one, the one you all heard to Robert. And when Robert heard us, he said it was the worst. So, we tried everybody. KT wasn't purposely excluded, she wasn't playing hooky from Suze School, she just hates that topic so it can't hate it. I'm not good at it. But we were really, it was a bad podcast was born. I confused her, I kept asking her questions that probably you all want to know, that had nothing to do with the topic. So, anyway today going to be different because this is asked Suze and KT anything. And by the way, if you want to send in a question really the best way to do it is just send in a question via email@example.com. That's really how you should do it. You can do it through the community app as well. But it's just easier firstname.lastname@example.org and then if chosen, we will try to answer it on this podcast, go for it, girlfriend. My first question is my favorite, nice and short and to the point it's from Lisa and it said I am 55 years of age, I would like to purchase stock. I'm not sure what would be the best way to start. I'm hoping to look at retirement in about 10 years. Now, Lisa's son has invested in Nike and Disney and she also heard about Penny stock Suze, can you please advise her? Where does she begin? Lisa, the way you begin is with a diversified portfolio. You never, ever want to buy just one stock and you never just want to buy a Disney or a Nike or whatever else it may be. If you're going to buy individual stocks, which you can do, you want to buy at least 15 or 20 individual stocks so, you have diversification. Now years ago, that was really hard to do because you had to buy at least 100 shares a long time ago or whatever it was. Now, you can buy what's called slices. So, if you wanted to buy Disney, you could buy $10 of Disney. You could buy $50 of Nike whatever amount you want, usually it's $5 minimum or a dollar minimum. So, you can open up an account at Fidelity or Schwab or wherever you want. Fidelity is probably my favorite at this moment in time and you could buy individual slices of stocks. However, I still think when one is just beginning, they are far better off, especially at this point in time where these markets happen to be, to be dollar cost averaging. Which means you take a specific sum of money every month and you invest it and I would be investing it in an exchange traded fund. Either the Vanguard Total Stock Market Index fund or the Standard and Poor's 500 aristocrats symbol NOBL, which pays about a 2% dividend. I would be doing that every single month. That gives you total diversification and you can just set it and forget it. One thing I just want to say, KT, I still am a firm believer that something's not quite right with these markets. I'm telling you they were down 200 points or whatever the other day. Then up there, up, down, up down. I'm not sure you're really getting anywhere. I think the end of May we may see things really start to happen. Okay good because that that addresses our next question. Hello, Suze, KT. I'm typically risk averse. But lately I've been feeling very risk allergic. My husband and I have no consumer debt. Have a fully funded emergency fund. They contribute to the retirement. They're doing great. Both of them give each other a small monthly budget and they get to spend that on anything they want. So Elisa, has been buying into the stock market a few $100 a month at most. Now she's wondering with the talk of a decline which is to your point. Suze, would it be wise to just save my stock market money in a savings account and then go stock shopping when the stocks are on sale or should I continue to invest month by month. Continue to invest month by month, why? Because as much as maybe Suze Orman thinks that you know, starting around May 28 now, sorry, I was a little early at April 5th, now around May 28. That these markets may start to decline over the next year or two and then I think you'll be fine and then they'll start to go back up again. There is no way to know for sure what's going to happen. Therefore, you cannot time these markets, you cannot. So, if you really think that these markets are going to start to go down, then the safest way to do it is to dollar cost average into them as the markets are going down and be happy that they're going down if your dollar cost averaging and it's really just that simple. But no, do not wait until they go down and then by because what if they never go down and they go straight up from here? You never know. So next question Suze is from Beau I'm 51 years old, divorced two kids. She has about $500,000 in retirement funds and an eight-month emergency fund. No credit card debt. Anyway, here's the bottom line, Suze. Beau and her partner are parting ways after 10 years. He has $70,000 left in the mortgage on his half of the condo they live in and Beau would like to buy that condo and stay in it. They're still determining who gets what. So, this is what she's asking if my ex and I agree that I can buy his half of the condo. Is it wise for me to take out a home equity line of credit to pay for it. My other thought was to cash out some of my retirement fund, but I would lose so much money in the penalty fee and taxes. Do you have any other suggestions? No, just take out a home equity line of credit. Just that simple. Do not touch retirement funds. I thought you'd say that. Wait KT, I have one for you. Okay. All right. Because I've been saving this, all right. And I'm the one who has to read it. Everybody because if KT read it. She would start to cry again. So, a little bit ago. I think it was a week ago right now. This is my student? Yeah. KT got very emotional because a woman wrote in to ask about her son who was going to, you know art school, should he, should he not? And KT answered it and during the answering of it, she started to cry because she's so emotional because KT, her sister, Lynn, her whole family, they're artists we are all artists. And so it touched her. So, we got a response from Mama. Here was her email. She says, KT, thank you for reading my email and giving me your advice truly, truly from the bottom of my heart. I appreciate it. And I'm so, so sorry my email made you cry. And with this she attaches a little video of her son, Jimmy, the artist playing a Ukulele. So, KT, I just want to play this for you right now. Ready? Look how cute he is. And maybe all of you can hear it as well. Ready? Listen, look how cute he is KT. The cutest Oh, jimmy, You're great. So that's jimmy playing. Right? But jimmy, what I want to say to you about that is that, do you know KT when I was that age, I used to play Ukulele. No. And my friend Patty Shatila and myself called ourselves the Ukemops and we would go around and be hired for birthday parties. That's how we made money when we were like 9 and 10 years old going to birthday parties. You play, can you remember? Yeah, this land is your land and things like that and we would sing to it and we would make a few bucks for kid’s birthday parties and we just thought we were so great. So, Jimmy. We loved your video Jimmy, can you sing? I don't know. Send Me one in a couple months of you singing a song over the rainbow. Just wanted you to know KT, Jimmy loved your answer. All right now you're right. So next is from Katherine. Hi Suze KT. It's fun to listen to you both. Could you please talk about the modified AGI limit for traditional IRA for 2020. I'm so confused. I thought the MAGI For married filing jointly is 196,000. I try to do a 1040 since we started a traditional IRA in 2020. I do have a 403B. At work. My husband doesn't work but has a spousal IRA. So, Suze. This is a question for you. There you go. Catherine. Of course it is. So, everybody listened to me if you want a traditional IRA which means you want to take it off your taxes. Otherwise, you would do a Roth IRA where you contributed with after tax dollars, which is my favorite and I wish you were doing that. But let's say you want to do a traditional IRA and get a tax write off. If you're not covered or your spouse is not covered by an employer plan such as a 403B, 401K, whatever it may be. Then there are no AGI limits for you. Howeve,r you say Catherine that you do have a 403B at work. Your husband does not right. The only way for you to get a full deduction of your entire contribution is if you do make 197,000 a year or less of modified adjusted gross income. Once you make $207,000 or more, you don't get any deduction whatsoever. So those are the rules. it really is just that simple. So KT, you know, modified adjusted gross income applies as well to traditional IRAs if you or your spouse are covered by a retirement plan at work, if you're not, there are no limits. Okay, so here's another one, Suze from Gabriel about the five-year rule podcast and listen everybody. It's a tough topic. That's why I did such a bad job with Suze and she did it on her own. So, if you do have questions, don't be afraid to send them in. So, here's the question from Gabriel, if I contribute $1,000 into my Roth IRA and I put all 1k into an index fund, let's say five years later it becomes $1,200. Can I still withdraw my original 1000 penalty free, even if it was invested? Yes, okay, there you go. Yeah, you don't want to put money into a Roth IRA and not invest it. So, when I say that you could withdraw your original contributions anytime you want without taxes or penalties, regardless of how old you are and how long that money has been in there. It doesn't mean that it had to be in cash. You always want money that's in your Roth IRA to be fully invested. Okay, good. Yeah. All right. Unless of course your dollar cost averaging into the markets, then you want to put your money in a Roth IRA and take five or $600 a month and put it into whatever you're investing it. All right, come on. Okay. So, this is um this is a good question because I don't know the answer at all. Just wait a minute. Are you trying to tell me that the questions are only good if you don't know the answer? No. But this is a really good one. This is like right out of left field. But it's a great question. This is from Tammy, Suze. If one of our beneficiaries gets married and the last name changes, do we have to update our will and trust documents using her new name? Or does she just show that she was married at the time of our deaths and that the current documents are valid? This one My dear tammy. It's very clear. Trust in a state law is very clear in that it wants to honor the wishes of the person who created the document. So, as long as it's clear who was the attended beneficiary, it doesn't matter if their name was changed. If someone goes back to their maiden name, it's very clear who the person intended to receive the inheritance. So don't worry about it. So, in other words, it's not like really strict, it's not strict at all. As long as it's obvious who that person was, you don't have to go back. If you use your will and trust kid. It's really obvious because there's always a photo of that person. There is a photo of that person to all of you. Take advantage of that. By the way, so many millions of you seriously have done the must have documents, and but do you take advantage of the fact that you can just snap a picture or use your phone obviously, or your library and it populates a picture of all the people that you're leaving something to. So, there's no confusion at all. You want the must have documents go to suzeorman.com/offer $69 for over $2500 worth of state-of-the-art documents. Just saying, go on, KT, KT KT tell everybody how there was this little dove. I was so worried about that landed on our balcony today this morning and she kept sitting inside, looking out, watching this little dove and said, KT, it's stuck. I said, no, it isn't. A balcony is huge. And I said, watch. So, I opened the door and the little thing just so worried about it was little bird was eating crumbs. It was eating crumbs from toast or something. So, here's the next question from Kim. Hi, Suze and KT. I'll make this short and sweet. My husband and I are looking to relocate from New York to North Carolina so that my husband can stay at home with our special needs son. We will sell our primary home in New York, which we paid 170,00 for back in 1998. My husband was added to the deed in 2020. The home may sell nice, nice at profit for 650,000 with a gain of about 480K. Since we filed jointly, I'm assuming we won't have to pay any gains tax on the sale. Does the fact that I added my husband to the title reset the clock on the time we have lived in the house? No, in fact his name doesn't even have to be on the title of the house. As long as you're finally married jointly, you both get the $250,000 exemption. So, you betcha you get a $500,000 exemption when you sell. Okay, Suze. Next question is from Ruth. So dear Suze. I've been following you for years. Thank you for educating all of us who are not financial geniuses. Oh, KT can relate to this one. Go on. That's not nice, Suze. But it's true, it's true. So, Ruth is 68 years old. She's a mother and Oba, a grandmother to four grandchildren and one first grade teacher. And she said that should cover all the demographics. Her question is that she's been struggling for the last two years. Whether she should buy a house at this stage in her life, it's been her lifelong dream to own a home. So long story short, she's been renting a small one-bedroom apartment for 10 years and her landlord never raised the rent until now and he's only raised it for a very small amount. But in any event, this is the situation Suze, Ruth has a mutual fund with $40,000 in it. She has 68,000 in a regular savings at a credit union. It's all that she has. I think it's Alliant credit union. I hope so. It's taken her 10 years to accumulate this money. Suze and she's able to put $1500 to $2000 into savings each month because she lives below her means. So, her question is should she take this money and use it for a down payment on a home? Or should she take her daughter and grandkids on a cruise of a lifetime? Or you know, should she keep this money safe and sound until she retires. So, I don't know. Um That should have been your quizzie. This should be your quizzie. Alright, my answer. All right. I'm going to take a good guess at this one. Ruth, I know how you feel about being 68 and a grandma and wanting to take care of everybody, but you should take care. No, but You're 68 but not a grandma. I think that you absolutely need to keep this money safe and sound without a doubt. Listen to me, Ruth, is that just because you have this money doesn't mean you need to do something with it. Can I just say something like I have a choice? Your daughter and the grandkids should take you grandma, you Oba on a great cruise of a lifetime. Do it the other way around and do it as a family savings opportunity. I personally, this is just my own personal thing. I don't care what the prices are that they're charging to go on a cruise right now. I'm not exactly sure that right now is the best time for you to go on a cruise. Just saying, okay, you can always do that. I also don't think now is necessarily the best time for you to buy a home given that real estate has absolutely gone through the roof. If I were you, I would just continue to stay exactly where I am, renting. You want to do something with your kids? Oh, take them somewhere where it's just an adventure or something. But really, I would just continue to save and save and save. If you're saving $1,500 a month, you're saving $18,000 a year. In just a few more years, you could have over you know, 100,000 saved and maybe then you'll want to buy something when real estate comes more in line. But right now, can you just not do anything and just continue to save to make that dream of owning a home one day a reality. Do you agree with that, KT? Yeah, I think that it's important that she takes care of herself. Yeah, without a doubt. But she may think taking care of herself, KT, is buying a home. The other thing is you never want to buy a home with money that you have to cash out of the stock market with, because when you cash out of the stock market right now, especially if it's outside a retirement account. You will pay capital gains tax or ordinary income tax on that money. So even though you may have $40,000 in a mutual fund, that doesn't mean you're going to get 40,000 after taxes. People have to really remember the tax consequences of selling. Mm yeah, you can lose like a lot. Well, depending on your tax bracket. Okay, all right, next question. This is actually my final one. But it's a two-pronged question and it all has to do again with the stock market. Suze, I think you made a lot of people very, very aware that we're in a roller coaster time. So, this is from Erin said on a recent podcast, Suze mentioned the tumultuous stock market and advised an older person who may need immediate funds not to put all their money in Wall Street. My husband and I are in our mid-fifties, we won't need short term access for another 15 years or so. However, we do have several 100,000s invested in our Vanguard accounts. So, then the question is should we let it ride out and keep our money invested as is? And then the second part of this is that her elderly parents, they're in their late 80s, they live with them and Erin is the caregiver. They have 900,000 in the stock market. Should they pull all the money out or leave it invested? They're in their late 80s. And how would you answer that, Miss Travis? Whoa. I pull it out, for who both? No, for the parents. All right, so and then just keep that money safe and sound alright let's go I risk it. Let's go to Suze School here. Okay, so KT, let's just say this is your mom, your dad, don't you wish because they had $900,000 in the stock market. Before you can give advice, before I could even answer this question. I would have to be able to say Erin is this 900,000 in a retirement account or outside of a retirement account. Because if it's in a retirement account and they want it safe and sound fine they could sell right now. I don't have a problem with that. If it's outside of a retirement account, then you have to be really careful because what if they originally had $200,000 and now it's $900,000 and now they sell and they owe you know $700,000 in capital gains and depending on their tax bracket, whatever that may be. So, there's no way Erin for me to answer that question for you. However, I am going to say this if it is outside of a retirement account and you did not tell me the health that your parents are in, right? They do live with you however, which suggests that possibly there a little bit frail. They're in their late 80s. You have to know that if it's outside of a retirement account and they have tremendous gains on this money that are they better off just keeping it, because upon their death, if they leave it to you or to anybody. Currently you get a step up in cost basis on that money. So, let's just say you inherit $900,000 the day they die. You then turn around and sell all $900,000 out of the stock market, you're not going to pay a penny of income tax on that or capital gains tax or you decide to keep it. Your new cost basis is $900,000. So, what explain that more? What it cost basis is? It's what it cost you to buy it. So, if it's what it cost you to buy it, you're only going to pay gains on anything above your purchase price. So when, so the cost basis is determined on the value of when she inherited it. That's right. It's usually the day they die or six months before you get to choose. So, you have to really look at that because if you were to sell it right now, and it's outside of a retirement account. They could lose easily $180,000 possibly, who knows what they could pay in capital gains tax. So, are they better just keeping it? Also, when you ask me a question like that, I need to know what stocks they're invested in because let's say they're invested in stocks that are paying a 4, 5, 6% dividend yield. So, you're actually getting $40 or $50,000 a year of income from this $900,000. Because if you sell it after capital gains tax, if it's outside of a retirement account, where are you going to invest it to get any money, seriously? So therefore, I can't answer that question for you. But I could at least give you some guidance which hopefully I did. Now if the money is in a retirement account, then it really doesn't matter in terms of if you sell it, you don't. If it makes them feel more secure because they know they have $900,000 then sell it for you. However, because you're in your 50s, even though I do think the next year or two is going to be very, very up and down. Probably more down than up in the stock market. I also believe that if you just ride it out and continue to dollar cost average in a year or two from now the markets will resume their upward trend. So, am I selling out of my stocks? No, I'm not because I plan to keep them for a long period of time. However, I also have a serious sum of money in cash that I am waiting to see what the stock market does and if it does go down, I will absolutely be investing in it. Do you know I'm going to be investing in it? No. Are you going to be investing in it? Yeah, I will follow you. Keep going, sing to me. KT sing to them every morning what we do. But it's a beautiful morning when we wake up. Okay, so here's what we do, usually I'm in another part of the house making coffee and I sing really loud “It's a beautiful morning” And then I go “uh huh” well it's like uh all right, I can't sing today. That's a little wake up song. We do that. We've been doing that for 20 years. I know, right? And if I don't do the ah ha with enough I keep I keep seeing my verse louder and louder and if I don't hear my uh huh back it's like come on Suze, did you die? What you get on with it girl? Alright that's the last one was my last question. It's okay KT it's quizzie time. Okay give it to me now before I do this quizzie I do just want to make one other comment about last Sunday's podcast which is the five-year rule because one of the things that I did leave out which is the reason that I want you all to make sure if you currently don't have a Roth IRA that you open one up to start. The five-year clock ticking is because if you happen to have a Roth 401K. And it doesn't matter really how long that's been open and you then leave your place of employment and you put it into, you roll it into a Roth IRA that you already have the five-year clock started when you opened up the Roth IRA. That's why I want you all to open one up in case you ever think eventually you may have a Roth 401K or 403B at work or whatever it is and you're going to want to put it into a Roth IRA. That's why I want you to have that time clock already ticking. You should see her face whenever we get this topic of Roth, it's like, okay, wait, we have to have a serious talk. You have, you have to stop having such a block about Roth IRAs they are the best possible investment vehicle that one could ever, ever have. You should look forward to Roth IRA. I have a problem with that, Suze. What's your problem is that? There's so many variables. There's so many different variables. If you asked me to explain the difference of all of these Roth IRAs, traditional and again, if you ask me to do that, it's I have a tough time. I have to really study it, memorize it and then I'll know. But I have no problem with them. They're the best you want everyone to have a role. All right. But I'm just telling you don't want to talk about him, don't give a look like here we go again. All right, Ready for your quizzie It's about a Roth IRA, right. I knew he was setting me up. I'm giving you that look right now, like here we go again. Here we go. Hi, Suze in last Sunday, Suze school you talked about the five-year rule which it was absolutely great as always. However, that was just about a Roth IRA. Do these rules or any other ones apply to traditional IRAs too. Is that the quizzie? That's the way it was Roth baby all the way. So, the five-year rule only applies to Roth, do other rules apply to a traditional IRA Miss Travis, I wait till Sunday to answer that didn't do that. I don't know. I don't know. All right so how am I supposed to know that? It's all yes. Well, Sunday school was about the Roth. Yeah. So, you got one? Ding ding ding ding ding. Yes, KT. It only applies to Roth IRAs the five-year rule. And the reason that it only applies to Roths is because the government just wanted to make sure that people just didn't do Roths and converted Roths and everything and we're able to take their money out right away and everything. Anyway, other rules that apply to traditional IRAs are like, they've always been, if you have a pretax IRA or traditional IRA, you cannot take any money out whatsoever before the age of 59.5 without a 10% penalty. Any money that you take out will be taxed to you as ordinary income. Any money that your beneficiaries inherit when they take it out will be taxed to them as ordinary income. So, a traditional IRA a traditional 401K, 403b, or TSP. The rules are all very simple. You really cannot touch that money before 59 and a half. Otherwise, you are going to pay not only ordinary income taxes on it, you will pay a 10% penalty as well. Isn't there also another rule that at a certain age you have to start taking it out. Oh God, I'm so proud of you. I was just going to say that. No, I remember because I thought that's not really fair. You save all this money and you're doing great. You don't really need it and you wanted to keep growing. But the government's smart. They make you take in a traditional IRA a required-minimum distributions which means there is a minimum amount that you have to distribute from your traditional IRA, once you have reached 72. So, April 1st in the year after you have reached 72 you have got to start making required minimum distributions from a traditional IRA. You do not have to make required minimum distributions from a Roth. So, there are so many reasons why everybody I want you to have a Roth. Can you just do that? Can you just do that one thing for me? Just one. It's just that simple. All right, KT, what are we going to do today? Say goodbye. That's all we're gonna do, is say goodbye. No, today's a big day. Why we have a lot on our plate today. Yeah. Yeah. I do, tell everybody what I'm doing today. She's doing something really special today. She's doing a really important conference zoom. You know, lecture to all of the nurses and the health care staff and everyone at Brigham and Jen Mass in Boston. Brigham Women's hospital and thanking them in her way by giving them financial advice for taking such great care of her during her time of surgery, which I wish we could forget about. But we don't. But in any event, that's what we're doing, so it's really great. And we want Brigham and the whole team to record this so that they can use it over and over again for all newcomers. But I just want everyone to know always say a prayer for all our healthcare workers. They need our support and they're still really very, very engaged in feeling the suffering and the ramification from Covid. Well, Covid is still rampant. It's still going on. But it was a very difficult time for them. So, Suze and I are both participating. But this is Suze's gift back to all those great caregivers. So that's today. I forgot already. Big. Yes. All right everybody. So, until Sunday, do we know what we're doing? Sunday, it's Mommy's. Sunday's Mother's Day such a special day. So, join us join us this coming Sunday to wish all the Mommy’s, happy Mommy's Day. But till then, Suze's the money Mommy! Money Mommy going to talk to all of you on Sunday, I will see you then with my favorite money Mommy's spouse. You That's you, KT. Okay. Have a great day, Everyone. All right. Talk to you all soon. Bye bye.
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