401k, Credit Card, Investing, Mortgage, Roth IRA, Will
July 29, 2021
Listen to Podcast Episode:
On this podcast of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners Cindy, Greg, Jennifer, Michelle, John, Joanne and Anonymous selected and read by KT.
July 29th, 2021. Guess what today is, Thursday, Thursday. But it's a great day. Yes. It's a great day to smile everyone. But wait, it is Ask Suze and KT Anything with a smile. With a smile, why are you saying that with a smile? Because I'm really excited about our dental plans. I'm excited about everything we're doing. Oh, no one knows yet, but we can tell them. All right, well, there's so many things that I want to tell you coming up from the sweepstakes. All kinds of things. But okay, I wasn't expecting this but go for it, KT. So, I'm really excited. Suze recently did a series of fabulous commercials for dental plans. This is something we've both been wanting to do for about three years. Wait, let me just say this. The reason why everybody is that it's really important that your teeth are taken care of and it's expensive. And so many of you have dental insurance, which actually I'm not a fan of. I'm just going to say that I don't I don't quite get it. It's expensive. And I found out about something called Dental Savings Plans a few years ago and KT and I use these plans because it's like about $100 something dollars, 120/150 a year for a family plan, whatever it is. And it saves us so much money on our teeth. I cannot even tell you. So that's why I wanted to do commercials for dental savings plan because why? It saves you a lot of money and not many people know about it. All right now, what do you want today and tomorrow? They are having their summer flash sale. How do you know this? Because everyone told me and they're announcing it today and tomorrow, only Suze, dental plans. You've got you've got to do this point to sale 30% off any of the plans and 30%. So, the reason that you want to do this is that KT wants all of you to go to dental plans.com. Because that's where you buy a dental savings plan. You buy one at dental plans.com. And after you've purchased one I imagine, is there a code that people put in? Yeah, there's a code called Flash721, 721 which happens to be what, KT's birthday. 721. And then if they do that they get 30% off any plan. So, it's a really big deal. It's a big deal and it's only two days. I have to tell you. I got one for my brother. You did, yeah I did. You bought it today already for him? I did. He's coming to get his teeth fixed and he's going to have an incredible smile when he's done. All right now. Do you have any other surprises for me? No, I'm ready. I have a lot of questions and some of these are a little bit tricky. I'm sure you have a tricky quizzie. I have such a tricking quizzie. I'm not going to get stressed over it though because I'm real happy today. All right. Okay. So, then why are you happy because you save some 30% on if KT saves money on anything, I can't tell you how happy that makes it because it does. Okay, so this is from Cindy. I have a question for you. Cindy's mom passed away recently. Cindy. We're sorry for your loss. But I think what you're about to do is hopefully your mom will be excited. My mom passed away recently and I have some extra money to invest. I want to make sure that it grows with the least amount of risk. So, the investments Suze would be about $7 or $8,000. Cynthia's 52 years old, her financial advisor suggested that she invested in the American Funds, tax aware, conservative growth and income portfolio. I never heard of that. The fact that you have to look at it and not be able to remember what you invested in as a warning sign to me but go on anyway. So, Cindy is asking, she said Suze, I would be investing in the class A paying the front load up front instead of getting this Class C shares. Um Is this a good investment? She basically wants your advice. So, I never heard of that. Of course you haven't, right, but I have so first of all, my dear Cindy again, I'm so sorry for your loss. You know as time goes on for some reason, I miss my mom more and more and I so sweet Suze and I don't know why that is but it's interesting looking like her more and more don't say that, although how lucky would I be if that were true? Okay. Oh my goodness. Right, so here's the things Cindy is that American funds is a fabulous family of funds. They really are. However, they are loaded mutual funds and the particular fund that you're talking about Actually has a 3.5% load, So, you would have to pay 3.5% of this $8,000 or $7,000 for you to just get in the fun. Now, what that means is that that fun has to go up 3.5% just for you to break even. So, I'm not so sure what I think about that. You know, year to date. I think that fun is up about 7.8%. But that's not the big deal. There's also an expense ratio of 0.66% which isn't that much, but it's definitely not as low as the Vanguard funds and the ETF So all of that eats into your returns. The particular fund that your advisor is asking you to invest in is what's known as a family of funds. So, it's made up of other mutual funds that are bond funds, balanced funds, equity income funds, growth and income funds, growth funds, all kinds of funds. What I don't like about this fund and this is going to shock you, KT that I know all this are I am pressing you so far you are because I never heard of this in my life. Is that I believe 25% of this fund is made up of the American high income municipal bond fund. Now, you know how I feel about bonds. It is their largest holding and then their average maturity of those bonds in that portfolio is 6.2 years, which is not a short-term bond fund, in my opinion. So, is it a bad fun? No. Is it worth paying a load for? I don't think so. I think you'd be far better off taking this money. Especially because you're only 52 years old. So, you have a long time until you need this money. So, if I were you, I would be dollar cost averaging into any of the Vanguard ETFs and I would open up an account at a Schwab or TD Ameritrade or Fidelity or even at Vanguard itself. If all you're going to buy is ETFs. Where you could literally seriously just dollar cost average and it won't cost you anything if you do it online. So no, I don't think you should be doing it at this point in time. Alright. There you go. There's your answer. I'm glad you knew that that was going to say. I can't even say they should just abbreviate it. Right? Well, the symbol for it is TAIAX. That's even to TAIAX. There, I had some game that I used to play with myself because trying to remember those That's fine really, has only been around since 2012 I think. And the average growth since 2012, KT has only been like 8.29%, something like that. So no, that's what I think. Right next question is from Greg. I love you guys. Thanks for all you do. I'm 41. I will retire from the New York City MTA I believe that's mass transit at 62 with a pension. I have nothing as far as retirement. So, here's his question, Suze, should I put money into the MTA Roth 401k for the next 20 years or just open a Roth IRA and put it into the VTI. Now there's your Vanguard Vanguard, Total Stock Market Index Fund. ETF Yep. So that's what he's asking you. He said, he says thank you, Suze. I wish I found you 10 years ago from Greg. I wish I found you 40 years ago, KT. No, you don't. I do, no you don't. Why don't I? Because we found each other just at the right time. No baggage. Lots of experience and fun. It's been fun. Funny and money and fun, fun. Right? So, here's the thing Greg, why not do both? You know you can have a Roth 401k. And you can also have a Roth IRA. So, the truth of the matter is it's not which one should I do? I would be doing both. And if the MTA and I do not know this. If they happen to match your contribution for money that you put into a Roth 41K. You absolutely have to do that one first up to the point of the match. If they do not match, I would then fund my Roth IRA completely and fully to the $6,000 since you're only 41. Therefore, after that I would then do the Roth 401k at the MTA. Alright, there you go. Suze. This next question is a little bit odd, but something that I think a lot of people struggle with ready for this. This is from Jennifer. She said I'm an avid listener of your podcast and even brought them must have documents. However, I cannot bring myself to create our will and trust. So, Suze, here's the situation my husband and I don't have Children but we both have younger sisters. The thing is we don't get along with them because of that. We don't want our hard-earned money going to either one of them if something were to happen to us. So, there you go. They're both very successful. They do love their nieces and nephews but they don't want and they think they have to leave money to the sisters. So how do they do this? Give them some advice. So, first of all, if you do nothing, let's say you do absolutely nothing. You don't create a will. You don't create a trust, whatever it may be. You're leaving that money, whether you know it or not, because then you die in what's called intestate succession, which means you die without a will. So, then the state that you live in has already decided who is going to get the assets for you. Normally it would be your spouse would get half and maybe your children would get half. If you don't have children, then maybe it's your mother gets half and your spouse gets half. If you don't have a spouse, you don't have a mother, then your sisters would get, it just goes down that she goes down the chain. So, the thing that I would do, if I were you, I would absolutely create not only the will and the trust absolutely a trust is necessary because you don't want people to go through probate. If you're going to leave this to your nieces, for instance, it doesn't have to go to your sister's, it can go directly to your nieces and nephews if you want, or friends or friends, or better yet, you may decide to just leave it all to a charity. So, in your trust in your will leave it to a charity. Right now, and everything changes in our life all the time. Right now, 90% of everything that we have is being left to a charity. So, it's a fabulous way to leave money. But you also want to make sure that you're protected in your lifetime, not just a death. Which is why a living revocable trust will also protect you and your spouse against an incapacity or all kinds of things that way. So, if I were you, I would absolutely complete my will and trust and not let the anger that you have towards your sisters or whatever that feeling is get in the way of protecting yourself and your money. So, Suze let's also remind everyone if they don't have a will and trust where to get it. Yeah. So, everybody I do have what I call the Must Have documents and you would just go to suzeorman.com/offer. You could get over $2,500 worth of state-of-the-art documents created by my own trust lawyer. And you can complete them in the luxury of your own home. They're good in every state. And people just love them and you they can be used over and over again and you can share them with your family members. Okay? Go on, KT. Suzy. Next question is from Michelle. She's 68 years old and her fiance is 67. They have a 30-year mortgage with 23 years left at $206,000 at 4.375%. Finance girlfriend. How old are they KT? I'm 67 and 68. So, they're in the process of refinancing with quicken loans and rocket mortgage for a 15-year loan at 2.12%. So, what's the closing cost? Does she say? $6,300? All right. So, what's your question? Okay, So the rest of this is I've also looked at my bank in town. They have an interest rate of 2.75% and a cost of $3,000. Suze. My credit score is around 805 to 810. It's a good score. I have $250,000 in a checking and I owe about $4,000 in credit cards, no other loan, no car loan or line of credit. So, Michelle, I know it seems like if you're going to refinance your house that $6,300 for closing costs upfront might not be worth it. But I have to tell you if you're going to go the route of refinancing 2.12% at $6,300 in a closing-costs versus 2.75% and $3,000 in a closing cost. Your better choice would be the one with Rocket mortgage because over the 15 years, factoring everything in, you will pay $4,000 more approximately with the 2.75% with the $3,000 than you would with rocket mortgage. However, if you feel really secure in your relationship and you're now owning this home together. Then maybe what you do is take the $206,000 out of your checking account. That isn't making you any interest at all by the way, most likely. Unless it's in an Alliant credit union checking account that pays .25%. But that's besides the point. You might want to think about taking $206,000 and doing what with it, paying off your mortgage all together. Because the goal of retirement is for you to reduce your expenses, it's going to cost you about $1,300 or $1,400 a month. Somewhere in there. If you refinance that. So, you have to generate that income to be able to pay your mortgage when there's no way that $206,000 is paying you that in your checking account. Also, I just have to tell you that If you left that $206,000 in your checking account, even if it only made 1%. Do you know that after 15 years when you factor in a tax bracket and you factor in inflation, you'll have only $171,000 worth of purchasing power. So, you're actually losing money by leaving it in the checking account so you would be far better off paying off the mortgage in full. However, you do have a fiance and you just have to make sure that you protect yourself that if it doesn't work out, there isn't a split of 50/50 since you put in $206,000. So somewhere you have to have it in writing that whatever you put in, you get back. All right. That's my answer. Did I answer that? Yeah, you did. All right. This next one is sad, but also a very thoughtful question. This is from John and John is an attorney. He said, Hey Susan KT, my son was active-duty military and tragically died earlier this year. John is saying it's been a rough year and I can only imagine, he said, though his son wisely selected a $400,000 life insurance coverage, phenomenal premium and after they received the $400,000 payment, John and his wife paid off the mortgage on their home. We subsequently learned, however, of the heart act, which allows life insurance proceeds for a fallen service member to be placed into a Roth IRA by his beneficiary without regard to income limitations or caps on annual contributions. And John said, Suze, that seems pretty impressive. So, here's his question. We have several more months to decide whether to fund a Roth IRA under the Heart Act from the life insurance proceeds. Now, you know, they used it to pay off their mortgage, Suze. So, he's asking should we do a cash out refinance on some of the equity in our home at around 2.5% to put the 400k in the Roth IRA now. He said, we don't have other resources to fund a lump sum Roth IRA of this magnitude. And then John ends with this statement. There is a part of us that likes the emotional satisfaction of having the house paid off. Even if we don't have as much of a big Roth IRA lump sum growing over a longer period of time, Suze, what should we do? So, KT, I know that was an emotional one. I watched KT fighting back her tears just to read that. So, do you know what the heart act is? Do you know what heart stands for? No, just that simple. So, the hard act, KT was created in 2008 and it stands for the heroes earning assistant and relief tax act. That's what it stands for. So, but this is a question that I have to tell you. I'm not exactly sure how to answer. What's interesting is that at the end you say you really like owning your own home outright and that that's what makes you feel secure. So, I have to tell you, I would probably leave it right there if that were how you feel. However, you also could do a little bit of everything when you really don't know what to do. There's nothing wrong with you possibly taking out 100 or $200,000 rather than $400,000 and put that one or $200,000 than into the Roth IRA to let it grow for you know, 15 or 20 years or whatever it is, it's going to grow. And just have a really small mortgage and if you ever get in trouble then you know, you can withdraw the money from the Roth IRA that you originally put in without penalties or taxes. So, that's kind of like a cushion for you. So, my final answer here, I was thinking out loud to all of you would be, I would refinance at these low interest rates for $200,000, I would put $200,000 into a Roth IRA and dollar cost average or invest it since you seem like you know what you're doing there and then pay off the to start, you know, just do the mortgage of $200,000, which at these interest rates is not going to be that much for you on any level would be about $1,300 a month KT for them if they do a 15-year mortgage and by the way, only do a 15-year mortgage if you do this. Okay. Alright, okay. Suze. Some of these are short now. Let's get right to the chase. Quick question. This is from Joanne. I have an amazing credit score somewhere in the mid eight hundreds. 850 is as high as you can get right now. All right. Fico sooner than later might become obsolete. Go on, wow. I also have a lot of credit cards with a zero balance. I'm thinking of closing most of them because I don't use them and I don't need them. I'm afraid to rock the boat with my credit score. Will that have an impact where my better off just keeping them and just not using them. If the credit cards don't have any annual fees, just keep them. It's not that big of a deal. If you are paying an annual fee to have any of those credit cards absolutely close them. And as long as you don't keep any balances on your credit cards, your score will remain just fine. Okay, go on. So, next question is from, oh, it's obviously somebody who doesn't want you to say what their name is. Yeah, it says anonymous. So, questions from anonymous. Here's the question, first of all, I love your relationship it’s so sweet. Thank you for doing your podcast. Here's my question. My renter’s don't come. Nobody ever called me sweet before they heard me with you. They didn't, how come? What do you mean? How come, no one called you sweet? No. All right, go on. She just purchased her sister's town home for half a million dollars and it's in a great hot real estate market. She has long term renters there and decided to stick with them for another year while she gets, you know herself organized in terms of what she's going to do. And currently she lives virtually rent free with her mom's. She makes about $95,000 a year in salary and has about 100 in retirement. So, what's your question? Well, hold on, this is the problem. Here's the thing. The renters pay $2,300 in rent or the mortgage Is $2,700 a month. She said she can easily cover the $400, you know, a month longer term. But she's wondering what to do next because she wants, well that was the question. She said she wants to buy a home down the road with her future partner in about a year. She wants to have cash to contribute. Should she try to upgrade the home and charge more for rent, her sister's home or should she do short term rentals? She has all these options or just sell the property in a year or two. So, my dear anonymous one sell it. You purchased your sister's town home and now you own that town home and now that town home is not making you money and it's not just the you know $2,700 a month for the mortgage. It's also the property taxes, the insurance, the maintenance and everything. We are at all-time highs for selling a home. I would turn around and I would sell that home faster than you know what hit you because I don't think these prices will last for another year or two. Not that I think they'll crash, but why should you lose $400 a month simply on rent versus mortgage, which is like $5,000 year for the next two years plus everything else. So, it's going to cost you $20,000 to keep this home, probably not even get as good of a price. Just sell it, girlfriend. All right, KT. You know, at the time is right now quizzie, quizzie time. All right. And this is the quizzie not only for KT, but for every single one of you now, somewhere in this podcast with one of the questions I answered, I answered this question for somebody else in a different kind of way. So, if you've been listening to this podcast, the answer to this is going to be very, very easy. I picked this. Let me just tell you why I picked this KT. Hi, Suze. My name is Jeanette and I go by JT. See, it's somebody who's like you KT, JT. That's why I did it. All right. And she is 37 years of age and she met her wife in 2011, and that's when she was introduced to me. But that's not part of the quizzie. She says, currently I have a 401b. All right, it's usually a 403b. But we'll just leave it at that after serving eight years in my role. My employer now contributes to my retirement and my contribution is optional. I stopped contributing two years ago to save for the home we recently bought. Now I'm ready to start contributing again, but I don't want to contribute to my 401b. My employer is still contributing to my 401b. But I want to also contribute to a Roth account. The problem is I have no idea where to start or whether I should go for a Roth IRA or a Roth 401K. So, what does JT do, does she contribute back to her 403b? Does she open up a Roth IRA or does she contribute to a Roth 401K. That possibly her employer is also offering? I think she should put money back into 401b, that her employer has already been contributing to. So, hopefully it's really a 403b KT, just so you know, but that's all right. But she does call it a 401B. So, you think that rather than doing a Roth IRA and a Roth 401k. That she should put money back into her 403b. Even though her employer contributes to the 403b. Even if she does not. Yeah, because there's already, I mean it's already started. Why not kind of max it out? I wish you all could see the look on my face so wrong, KT, it's not even funny. In a 403b your investment options are not very great. Okay, just so you know, so there's no need for her to contribute to her 403b. At all because she's still getting the match. She can have a Roth 401k and a Roth IRA. So, she could have both. And obviously if she has enough money that's freed up, she would first fund her Roth IRA and then fund the Roth 401k. If you get to the point where you make too much money to put money into a contributory Roth IRA, you could fully fund the Roth 401k. And if you want do a backdoor Roth IRA, all right. What do you want to say KT? So, she has the 403B, the Roth IRA and the Roth 401k. Yeah, that's right. All three, there you go. Who got that one wrong? Got that one. So wrong. You can laugh, KT, Come on. Let them hear you laugh. All right. Don't worry everybody. It's only 2021.. Alright? That brings us to the end of another Ask Suze and KT Anything until, Sunday right? When we'll see you, you stay strong, you stay smart and you stay secure bye bye now. Goodbye.
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