Children And Money, Home Buying, Investing, Must Have Documents, Retirement, Roth IRA
August 19, 2021
Listen to Podcast Episode:
On this edition of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners Terry, Mare, Suzy, Eric, Michael, Becky, Deanna, Barbara, Aga and Seretha, selected and read by KT.
Terry - What is the difference between mutual funds and ETFs?
Mare - Can I open an investment account for my niece?
Suzy - Is there a savings account my nephew could have at 16/18 to access the investments I made him?
Eric - Does it make a difference to be in a lower expense ratio mutual fund with an employer sponsored 401k over higher expense ratio mutual funds?
Michael - Should I take money out of my 401K to make a down payment on a house?
Becky - What changes need to be made to my trust when I move states?
Deana - What should I do with my money to start my own practice with my partner?
Barbara - Can I share the MHD activation code with my family?
Aga - Should I invest in the market, other then ETFs?
Seretha - Should I only match my 401k and use the remaining to fund my Roth IRA?
If you want a chance to be on NBC’s Today with Hoda and Jenna on September 17, 2021 go here: https://www.today.com/money/can-you-can-afford-your-next-special-purchase-t219808
August 19th, 2021, and this is Ask Suze and KT Anything. And by the way, everybody, if you want to possibly have your question answered on our podcast, then all you need to do is right to firstname.lastname@example.org and have chosen by Miss Travis. What are you gonna say KT? If you put my name first, doesn't work anymore. Right. Don't make them too long. Don't make it complicated. Don’t send me a story, just send me your questions. All right then if chosen, it will be answered on the air and you never know when I'll personally answer it myself directly to you. So, today is a special day. Suze. Every day is a special day. Today is a special why? It's a special day. Guess what? I had early, early, early this morning. Pancakes, gluten free pancakes. Yeah pancakes, loved it, loved it, loved it. Oh my God, I loved it. Got All right. So, we both received a very precious um, letter from a dear friend and the dear friend is Lieutenant Colonel Cindy Feldswitch Retired. But wait, wait, we call her Major Cindy. Tell everybody a little bit about Major Cindy. So, this major Cindy actually came into our life almost 20 years ago when Suze was doing a book tour and we were in Albuquerque, New Mexico and we were outside of the place where she was signing and meeting people. And there was a long long line and as the day was getting late, a very anxious woman was like back and forth looking in the line wondering if she'll ever get to the front. And I stopped and was giving everyone little note pads with a little notes to put their name written out on the front cover of the book to make the line go faster. So, she looked at me, she said, do you think that Suze will accept this? And she showed me a gold star. And I said, what is this? She said, well my name is Major Cindy Feldswitch and I want to give Suze one of my major stars. She was with the United States Air Force. I said you can't do that, that's your star. That that says you're a major. She said no, but Suze so changed my life. I love her and I want her to have this. Well that meeting and that introduction to Major Cindy which we still call her by the way she was promoted to lieutenant colonel and I was there when she was promoted. When she met Suze, this beautiful connection took place and she said Suze, please. The military families need you so much. Will you speak on my base? So, that was the beginning of my introduction into the United States Armed Forces in many ways and it was all because of our Major Cindy. She came to our house once for Thanksgiving. She has served so many tours in Afghanistan all over. And then just recently we got this this letter. This letter is very beautiful. So, let me read it. Dear family and friends, many of you know yesterday 12th of August was my last mission. As I had an appointment at the Jimmy Carter Presidential Library and Museum in Atlanta, Georgia. My United States Air Force Honor Guard collection was gifted to the museum. So, the story of the first five enlisted women to serve as ceremonial guardsmen will be preserved for the future. I was selected 15th of November 1975 and graduated training with four other women on the 16th of July 1976. In January 1977 I had the honor of being an usher at Jimmy Carter's inauguration. At 19 years old, I thought I would never get mail from the White House again. So I had my badge, my photo and certificate, all framed. I saved it all my orders, my training certificate, all the badges, the pictures etcetera. And the library accepted my entire collection including my congressional record from Congresswoman Michelle Lujan Grisham. The United States Air Force has kept the story only at the honor guard unit at joint base bowling in Anacostia in Washington. This story is bigger than me. So, I kept looking for a home for my story. My team story. So, the American public one day, oh come on, I'm thinking of her and I love all that she's done. Yeah, go on. God sorry everybody. She, I love this woman. She said when the United States Air Force allowed women to serve on the honor guard. This opened the door for all the sister services allowed to allow women to serve in their elite ceremonial units. I did not get here alone. It is with a grateful heart that I thank you all for your support. Suze's crying too a little, so we love Major Cindy. We call her Major Cindy's Lieutenant Colonel Cindy Feldswitch retired now. But well, what a great honor. So, any of you, any of you that visit the Jimmy Carter Presidential Library and museum in Atlanta, please go and look for because honor guard collection and four other women, women were allowed to be part of honor guards and ceremonies for funerals for all kinds of things. Because of these five women. And Suze and I have had the great honor of being at one of these honor guard ceremonies in its highest regalia in Washington, just outside of Washington, D. C. For one of our general friends that retired and went to um to teach up at Harvard. Major Cindy has been responsible for everything that Suze has done for the United States military. We started with just airport Air Force bases and then the Pentagon appointed Suze as the official educator for the United States Army Reserve and for the United States Army. We've been to the commands in Europe. We've actually had an incredible, amazing experience because of one woman standing in line at a book signing wanting to do Suze her little star and she still has that goal and major Cindy, if you're listening to this, I still have your dog tags that you gave me before you went to Afghanistan just so you know. So, we want to really celebrate and honor and thank all women who serve in the military and of course all other members of the United States military were just very, very so honored that we met major Cindy Feltswitch. Alright, good. Alright. Here we go. Ready, Suze. Let's ask Suze some questions. All right. Hello, the two of you? My question. This is from Terry. I am currently invested fully in mutual funds. You often say that you like ETFs better than mutual funds. So, I finally need to get some clarity Suze, what is the difference between the two that makes you favor ETF. So, there are so many differences truthfully, but the main difference Terry is that with an exchange traded fund an ETF. It is exactly like it says it is a fund that trades on the exchange. Therefore, what that means is if I want to buy an ETF like the standard and poor's 500 ETF, or the Vanguard total stock market index ETF VTI. I could go on my computer on my phone, I could say buy me 100 shares right now and bam a second later I would own 100 shares. whatever it is that I would want to buy. With a mutual fund, you can't do that, when you put in in order to buy, you don't buy at that moment you get the closing price of that mutual fund. Whether you are buying or selling you get the closing price of the average of everything that's in that mutual fund that day. So, if you're afraid that the market is absolutely going to crash and you put it in order to sell your mutual fund, you do not get to sell it to the close of business that day. That is my main reason that I like ETFs over mutual funds. But I also like ETFs, because now with the onset of buying slices commission free you could buy fractions of ETFS. So, if you want to invest $5, $10 dollars you could many mutual funds you have to have a minimum of $3,000. So, I like ETFs over mutual funds. That's a good reason by itself. Next question is from Mare. So, Suze I'm going to summarize this a little bit Mare is our age. She's married, she doesn't have children but she would like to invest in continue to help her brother's grandchildren and they have there's quite a few of them and instead of buying them toys she makes little investments for them. But just I do too we do the same thing. But recently her brother just had a new granddaughter named Gracie and Gracie was born with Down syndrome. She has special needs. Her parents have told Mare please don't start any investment accounts for her because it could interfere with her financial assistance benefits, which I think is true. So, she's asking is there any way she can provide some future money for her Gracie? Yeah. The thing is Mare is that what's really important for you to know is that when a child has special needs usually they will qualify for something called S. S. I. Social Security disability or income or whatever it may be. But if they have too much money in their own name they just they get disqualified from it. And to qualify for it again is very, very difficult. So, usually a parent will set up a special needs trust that can be funded with money that this child's parents will want to leave to this to Gracie. So, it doesn't disqualify her. So, all of you might want to set up a special needs trust right now and put money into that. So, that Gracie can get it that money but not be disqualified from SSI. Can Mare set that up. Or the parents of Gracie, Mare can also set that up. But I think it would be a waste of money only. There should be only one special needs trust and why not? Everybody get together and put money into that. Good, good idea. So, this next question is from Suze. Love your podcast. You've touched on this briefly in the past. However, from the parent's perspective, I have a nephew who just turned two and again this is similar to Mare and she would like to give investments of anywhere from $20 to $100 on special holidays, birthdays, you know whatever instead of giving him a toy. So, she's asking is there a savings account he could get control of either at 16 or 18 and it would be something helpful for him to get a car go to school or whatever. So, Suze, what would you suggest that Suze does? Here's the problem. Suze is this is that if you put money in a child's name, it has to be either a uniform gift to minor’s account or uniform trust to minor’s account. Where you are the custodian for this child because the child is too young to be able to decide what to do with money. However, money that's in a uniform gift to minor’s actor, a UTMA account will count against this child when they need financial aid. So, it's not something that I would recommend doing. Also, I'm just gonna say this KT is not going to like what I'm about to say. So, I'm just preparing you, all right, KT, I saw this myself when I actually was seeing clients for all those years, when I had you know, my own practice and what would happen is you would see this child, little johnny such an angel, so fabulous. And parents would set up UGMA accounts for this child and I was doing this long enough to watch little Johnny angel go from the age of seven and eight when they set up everything to the age of 18, when automatically this money is legally Johnny's, nobody can know anything can do anything about it. Johnny turned into little Johnny Devil. And what was so sad is that in this one case that I'm thinking about it is it was more than one case Johnny turned into a devil, but in a very bad way, in a way where he got involved in drugs and all kinds of things and he used that money to support his drug habit and I won't even go into the ending of that story because it's not good on any level. So just be careful everybody because I know you think it could never happen to your children and I'm sure it won't however who knows really for sure what happens. So, I really think it is far better off to take money that you want to give to a child and put it into a 529 college savings plan or put it into a place where you control it yourself and you leave it as a beneficiary to them when they're older and you know, they can handle money. Okay, all right. Next question is from Eric, Hello Suze and KT. Hello Eric. Suze, I am a longtime fan of your CNBC show your books and now your podcast. I have a question about reallocating positions from a higher expense ratio mutual fund to lower expense ratio mutual fund with an employer sponsored 401K. So, the big question here, Suze, just to summarize for Eric, he has a 0.1% ratio, which seems high to him, the expense ratio and then there's some lower funds at a .03%. Yes. So that would make a difference. He wants to know, does it make a difference? So, all right, Eric you don't say in this email because KT just handed it to me How old you are. So, let's just assume you're 40 years of age, you're going to keep this going for 30 more years because you know, I don't want any of you really to retire before the age of 70. And let's say you have $20,000 and it's invested, and it's invested in a mutual fund that has a 1% expense ratio. That 1% expense ratio over a 30-year period of time would cost you about $7,000 more. So, you would have $7,000 less, then if that $20,000 was in a mutual fund with an expense ratio of .03%. Now, obviously we have to assume that both mutual funds make essentially the same return. But if it's in an index fund or whatever it may be, you're going to come in at about the same return. But that is the difference. A .03% expense ratio can mean to you versus a 1%. If it was by the way over a 40-year period of time, let's say you're 30 it could be a $10,000 difference. So, it can make a big difference. So. should you always opt for the lowest expense ratio possible? In my opinion, you absolutely should. And remember there are never any fees or penalties involved when you reallocate funds within a 401K account. Alright, next KT. All right. This is from my goal. Michael is actually pretty young and has an idea. Ready? Michael's 40 years old. He's single. He has a leased vehicle and a dog. I like that. My good start. Michael. I don't like leased vehicles. That's not the question. A big mistake already. Michael, Michael makes $43,000 a year. He lives in Massachusetts. He has a 401K valued at $140,000. It's fully vested and he's been with his company for 15 years. Good. Pretty stable guy. I would like to buy a house in Massachusetts. Should I take $100,000 out of my 401K to use as a down payment on a 30-year mortgage? There you go. He doesn't want to be house poor, but he wants to own something. Can this be your quizzie? No, he's Yeah, you can make it a quizzie. I don't think you should. I don't think you should do it, Michael. All right. I think I think, but why shouldn't he do it? Well, for two reasons. Number one, he's renting in a really stable, great, you know, opportunity and he knows the owners. All of that is his background, but he's only 40. So, why take all that money out. Plus, you're not allowed to take that much out. That's my girl. I don't know exactly how much, but I know you absolutely can't take $100,000 out of $140,000. Not anymore. So, during Covid and the CARES act, you were allowed to take up to $100,000 out regardless of how much you have in there. Everybody, know this rule and Michael, you need to know this or you're going to make a big mistake, when it comes to taking a loan out of a 401K plan the most you can take out. Alright is 50% of what you have in there or $50,000, whichever one is less. So, if you took 50% of your $140,000, that would be $70,000. So whichever one is less is $50,000 less than 50% of what you have in there. Yes. So, the maximum that you could take out as a loan from your 401K is only $50,000. So, you can't do what you want to do. It's just that simple. Nor can you afford it, boyfriend. Yeah, Michael, wait, just wait. You don't need to do this right now. Well, he's not necessarily a good time to buy. He does not say on this. That's not the point here, KT, it doesn't say I'm here, Michael. Do you have money in an emergency fund? Do you have what all you're telling me is that all you have is a leased vehicle and a dog and you make $43,000 a year. You are so denied by the way now that I'm saying that everybody, you are denied. On September 15th, so approximately a month. I am going to be on the today's show with Hoda and Janet the 10 a.m. hour doing a Can I Afford it segment. Don't you want to go on here with me live, don't you, everybody? So, if that is true on my Instagram account, on my twitter account, on my Facebook account and also on my wall on the women and money app. There is a link and we'll put that link also in today's podcast in the description. If you click on it and you fill out the form, then that goes directly to the Today show and they may choose you to come on the air with me obviously via zoom. Come on everybody. Let's do it. It's really a lot of fun. All right, go on KT. Okay. Next question is from Becky. But you gotta do it soon because a lot of people are going to apply. All right. Next question is from Becky. Hey, Suze and KT. Hey, Becky. Hope you're staying safe with all the storms. We are, they are thank God, they're good. They're all going south of us. So, we're just knocking on wood and pray. So, you often joke about how you change your trust. Uh, wait listen to this Suze without getting too personal, what type of changes are you making, we should be aware of? We change it all the time. Why do I change in case she gets mad at somebody or you know, she decides, oh, I'm not going to do that. KT. Well, anyway, wait, wait, wait. Let me finish the question. All right. No one cares about how often we change our trust. But the fact that we can change it and Suze's, you know, must have documents is a great will and trust program. You should all have it. You can make as many changes as you want for free versus going to an attorney that's 500. This is her question. A lot of people don't understand how this works. Can you speak to the need of making any changes when you move from one state to another? They drew up the documents in California and now they're living in Texas. The husband retires her hubby retires next June and we aren't sure where we will end up. Yes. So, the great thing about the must have documents which is the will, the living revocable trust, and the advanced directive, the durable power of attorney for healthcare and the financial power of attorney. Is that especially with the living revocable trust in the must have documents, they are governed by the laws of California. Now, KT and I are residents of Florida. What most of you do not know and many of your lawyers may not know is that your trust can be governed by any state that you choose for it to be governed by exactly like a corporation. You can have a corporation in Nevada, a corporation and you know, wherever it may be, um just be in Delaware because maybe it's more advantageous for your business, even though your business is not in Delaware or in Nevada. So, the reason that we chose California to be the governing trust body is that California has the most liberal trust laws of any single state there. So, you started in California, you're now in Texas. You do not change anything. Your trust is still valid and I sure you won't. Let me tell them why I change it all the time. Sorry everybody. She says no, okay, I have too many questions here. I want to get through so simply. I just changed my mind who I'm leaving things to what I'm leaving. These are great questions. Next one is from Deana and Emily. Hi Suze. This is from Deana. I'm 32 years old. My partners 38, we're selling our first home for $183,000. Our mortgage has a balance of $65,000. We have $32,000 in savings. So, just to kind of summarize what they wanted. And the only debt they have is $14,500 in a car loan. Alright. Ready? They both left their jobs two weeks ago. They're planning to move from North Carolina to Vermont. But they want to start their own massage therapy practice, which I think is come start it on the island you every day. God we love massage therapist. So, the bills and lifestyle they feel will require at least $5,000 a month income. And they hope within a year they'll be able to build the practice and have it paying for itself. So, they want to do what do they do money with all their money? Well, all right, my dear Deana and Emily, here's the scoop. So, you bought this house. You know, you're selling it. You're going to have about $115,000 left after you pay off your mortgage. You also tell me in this email that I'm looking at that you have $32,000 in savings. So, you're going to have approximately $147,000 in total. Obviously the first thing you're going to do is pay off your car loan. It's not a tax write off, I'm sure it's at a higher interest rate, get rid of it. So, now you have no payments and you have approximately $132,000. I want you to take all of it and put it into, and you should both do this in Alliant credit union savings account because their paying .55%, which is one of the highest interest rates that you can get right now. So, you would go to myalliant.com to open that up. If you go to my alliant.com, I just have to say this again, KT and you do this right now before September 13th and you each do it, was going to say they both should have the ultimate opportunity. They were both going to be entered twice into the sweepstakes that we talk about at the beginning of this podcast. I would leave that money there liquid. You might want to start a checking account as well. They'll pay you .25% on it and don't do anything with this money other than keeping it safe and sound till you know how the year goes and therefore once you start and you see that you're making money and everything is good then we can get around to investing it. But, until then you're to just leave it safe and sound next. Next, another one about must have documents. Hello Suze. I hope you're doing well. This is from Barbara. She said I'm a loyal podcast listener. I'm grateful to you for your wisdom. I've purchased the online must have document program and I was chatting with my mom about the documents and wanted to ask if I may pass along the activation code to her. There you go. And the answer to that Barbara is absolutely you know when I created that must have documents. The goal wasn't to sell every single person. I must have documents. No, it was to just get one of you to step forward to purchase them and then you do, you must have documents and obviously it's password protected. Nobody can see what you did. But then you pass your activation code onto all the members of your family so that they can be protected but that they don't have to pay the money to get another one. So, for all of you who want go to suzeorman.com/offer and you'll see they are there for $69 and take advantage of it and share it with your entire family and everything, $2,500 worth the state-of-the-art documents. Okay go on. Okay. Next question is from Aga. I'm glued to my Fidelity account, watching the stock go up and down. Should I buy that? No, don't touch it. I only I'm only supposed to dollar cost average to my ETFs, but it's so tempting. So, this this sounds like a dog is asking for your advice. Should she just set and forget it or should she go in and out of the market? Well it's not she's not really asking if she should go in and out of the market. Which obviously you should not. But if you have a little extra money Aga and the markets go down one day, and you want to put it in the market or an exchange traded fund or whatever. It's diversified and you're going to leave it there for 5, 10 or 15 years. Go ahead and do it. You never really set it and forget it and not pay attention to it. It's good just to see what your money is doing. But if it's driving you crazy and you're watching it every minute of every day and getting confused. Just give it a rest for a while. That's what I say. Next question is from Seretha, Suze I currently invest 10% of my salary into my employer's matching 401K plan, they match up to 4% if I contribute at least 5%. I'm wondering if I should change and invest only 5% to get the match and then the remaining 5% go into a contributory Roth IRA. And so it's a four, it's not a Roth 401K. Yes, you absolutely should. If you all of you listening, if you work for an employer that does not offer you a Roth 401K, and they only match up to five or 6% or whatever it is that they match your instructions are very clear. If you qualify for income wise, you contribute up to the point of the match of your 401K and after that you absolutely fund a Roth IRA to the max. Is that everything, KT, is that my quizzie time? All right. We have a quiz. E for all of you. All right now remember the quizzes aren't just for KT they are for everybody to see how well you are learning. And the truth is they're getting more complicated is time goes on. That's for sure. For sure. Hi KT and Suze. This is from Ben. I'm 35 years old and I'm looking to invest in a taxable investment account. All right. He's just not a retirement account. So, anything he does will be taxed to him if I start investing in a taxable investment fund in the current year. If I make gains, so, he buys something he sells it and he's made money, with those gains push my income above the $125,000 threshold which are KT as you know, is the maximum of his adjusted gross income for him to fully fund a Roth, right? He says I'd like to max out my Roth in the current year but I'm not sure how income would be reported if any gains are made on a taxable investment fund. So here is the question, will his gains in this taxable investment fund count towards his income or does it not because it's investment income and not earned income, Suze money is money. And the total amount of money I believe that one has is. It's not that one has KT, remember it's he has earned income. He's going to have capital gains possibly from this account or ordinary income. So, does it all count towards his AGI, when it comes to a Roth? My final answer is yes. Are you positive positive that if so? Yeah, I'm positive. I don't care whether I'm right or wrong. But that's it. So, are you ready? Yeah. Are all of you ready? Have you answered this question? Here we go once again with my favorite. Yeah baby. I'm right. I felt completely confident in that one. So, anybody what you have to know is that any investment income that you have from a taxable investment account counts towards your AGI, when figuring out if you qualify for a Roth or not. Right, that brings us to the end? No, it does us to a party. When are we going to the party? Yes, Margaret Nielson. It's Margaret's birthday, her 56th birthday today. Margaret is one of our Dearest, dearest Friends for so many years and our business partner, we love her. She's involved in everything we do. We absolutely have all the trust, faith and love for this woman because she makes our life easy. Yes, we make her life really complicated. Margaret really runs, she's not the top taco, but she's all the fillings of, she runs Hay House in our opinion and Hay House is our business partner forever ever created must have documents, the ultimate retirement guide, the nine steps to financial independence course. Everything that we have ever done, most of our fun things. Things I've ever done. We've partnered with Hay House. Margaret as soon as we're done with this, we're going to send you a very special birthday video. So, look for it. Yes, we will. Yes, KT and Margaret, as you know, you have a special gift coming to your house today so I can't wait to see what you think about it. So, we love you, Margaret. Happy birthday BFF. And um, because she is really, we call each other BFFs because we are. Can you believe it? I still have a BFF at this age. So, does Margaret. So, until Sunday, everybody. What do you want to tell everybody? Right? Stay strong, Smart and secure, baby. Yeah, sweetheart. All right, love you. Can I have more pancakes now? No. All right. See you soon. Bye. Bye.
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