Credit Cards, Estate Planning, Investing, Marriage, Must Have Documents, Retirement, Roth, Savings, Trust
October 07, 2021
Listen to Podcast Episode:
On this podcast of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners Catherine, Rita, Terri, Jose, Patti, Katie, Julie, Jennifer and Shannon selected and read by KT.
Catherine - What is the best way to handle money in a marriage?
Rita - How do I convert my 401k to a Roth, so I can borrow money from my retirement account without tax penalties?
Terri - Which pension plan should my husband choose?
Jose - Can I open up a backdoor Roth for my wife because our AGI is too high?
Patti - How can I help my mom organize her assets and avoid probate for my family in the future?
Katie - What should I do with my extra money left after funding my 401k to the match and my Roth?
Julie - Have I made a mistake in the long run choosing benefits over salary?
Jennifer - When does it not make sense to transfer a credit card balance to pay off debt?
Shannon - How can I save efficiently for my dog's health expenses?
October 7th, 2021. Welcome to Ask Suze and KT is back. Were you about to say KT before I said Suze. Yeah, I was going to say KT's back everybody, I've been waiting. I know she keeps saying don't you want me to do Sunday with you? Don't you think they just miss me terribly? You are back. But you know what today is, KT? October 7th, That's my girl. It's exactly one week before the Alliant Credit Union sweepstakes is over. Oh my God, I can't wait to find out who won. So, when are we going to know the winner? When do you announce the winner? I think November 24 something, I forget why that's when they told me. But I think it was November 24th, they have to make sure everything's. I don't know why but I'll let you all know when I know. Is that good? I am excited. By the way if you haven't signed up do it, because the chances of winning are really great. But that window I have to tell you is absolutely closing, because remember to sign up, you have to, you know, become a member of Alliant Credit union. You go to myalliant.com then they have to verify that it's you easy, they do a soft credit pull with TransUnion. Easy. Right and then you have to fund it, I mean so it can take a few days. So, you know, if you want into complications and everything. For whatever reason you will have missed it. So, you were listening to this, you better do it right here and right now, after our podcast because I have great questions. Of course, you do. Alright girlfriend, go for it. This one, this is one of my favorite questions we get asked this question often and I love it. Do you love it because you know the answer to it. No, I just think it's a great, it's a concern that most young married to be people have. So, this is the question from Catherine. Hi Suze and KT, what is the best way to handle money in a marriage? I am newly engaged and after listening to my parents argue about money my entire life, I want to do everything I can to start out on the right foot. My fiance and I are very open about our money and goals, but he tends to make more risky investment decisions than me, with Cryptocurrency and moving around his stocks in his retirement account. What is your advice? It sounds like us, doesn't it? Tell her about that. Yeah, I tend to sound like us right, but I tend to be incredibly risky at times with specific sums of money in cryptocurrencies and all kinds of different strategies. Mrs. Travis on the other hand what KT, totally safe, secure conservative. I don't like losing a penny ever, ever because she didn't like losing a penny. She missed out on making dollars and dollars, but that's besides the point. I have to tell you, Catherine sometimes Suze makes an investment and she'll get a call a week later and she said, okay KT remember, I bought that whatever she said, I just made like $85,000. And I said what? Really? And sometimes a whole lot more than that. So, Catherine, you said something that was interesting. First of all, you said that you're very open about your money and your goals. And it's one thing to talk about how much money you each have, what your goals happen to be in life. It's another thing and you did not say this. It is another thing to talk about. How are you going to share expenses? Who's going to pay for what? If one of you is making a whole lot more money than the other, and you have these expenses. Are you each going to pay them 50/50 and that therefore maybe that one of you is paying most of your money to the expenses and the other maybe isn't? Or are you going to do it a different way. But that's what concerns me more, than okay he tends to make more risky investment decisions than you. All right, I tend to make more risky decisions than KT and I do move around my stocks, especially in my retirement account because there's no tax consequence for me to do so. However, I also know without a shadow of a doubt that if anything ever happened to me, KT would have and with me or without me. I have to tell you, KT would be fine forever on her own. But if anything ever happened to me, KT would have more money than really, she knows what to do with. She also has a direct relationship with the financial advisors that are there for us. And she looks at the statements every single month and if by the way, I make an investment in a company that she does not like, because she happens to read the annual reports when they come in. That is besides the point, right, I say okay and I sell it because I don't want my money invested in any way because it's not my money, it's our money. So, I don't want our money invested in any way that makes her feel uncomfortable. Oh! Keyword they are uncomfortable. So, you need to understand, when do you get to the point where it feels uncomfortable because now after you say I do, this money is both of yours. It really is. And in a good relationship. That's how you want to look at it. So, if you are uncomfortable with anything your hubby to be is doing, you need to have an agreement that he then just doesn't do it, because no money is worth making the love of your life uncomfortable. Oh, she has such a smile on her face. There you go Catherine. I knew Suze had a good answer for you. Okay my next question is from Rita. I do anything that makes you uncomfortable with money? No, only if you lose. I haven't done that yet in 20 years, have I. No. All right. Sometimes those stocks go up and down but you've never really, no you haven't made any really big losses that I can, never ever made me uncomfortable. I always say to her did you invest money for me? Whenever she makes a big gain, I say how about me did you invest for me? She said no I didn't KT. It was too risky for you. All right. So, the next question is from Rita. So, Rita has a question about converting a 401K from her old job which she still has left with them to a Roth IRA and borrowing from it instead of borrowing directly from the 401K, and pay tax on it. So that's her question. What's your what's your take on it, Suze? Can you see my face? Can you just describe the look on my face to everybody, KT? It's like when I like she's laughing now it's one of those looks like huh? What what? This is why you need to listen to the Women in Money podcasts and over and over and over again because really Rita that makes absolutely no sense whatsoever on any level. First of all, you borrow money from a 401K plan. You don't borrow money from an IRA or a Roth because it's illegal to borrow money from an IRA or a Roth IRA, you just can't do it. The only thing you can do is make withdrawals and those withdrawals have ramifications to them. Maybe ordinary income taxes, maybe a 10% federal tax penalty and things like that. If you simply take the money that's in your old employers 401K plan and you did not say it was a Roth 401K. You said it was a 401K, and you convert it to a Roth IRA, you are going to owe income tax on% 100 of the entire amount that you converted. Once you have converted it, you cannot touch that amount even though now you've paid taxes on it and you have to pay taxes on it with money that's not in the retirement account. So, money that's outside of the retirement account. You cannot touch that money without penalty until it sits there for at least five years. So, no, this is a horrible idea. If you want you should be rolling your money over to IRA, and depending on how much money is in there, then you could convert little by little but you might want to listen to Sunday's podcast everybody, because believe it or not, they are thinking about getting rid of Roth conversions all together. Just something you should know about. All right, that's going to be a great podcast by the way everyone, Sunday. So, listen to it. KT came into, I said can I help you? She said no. She said this one is really, and Suze had to study all of these new laws and changes. KT came into the studio this morning and you know this morning. So, what is that big stack of paper? Oh, those are all the new changes that are about to happen in 2022. So, the question is what to do in 2022. All right, okay. Next question is from Terri. My husband is due to start his pension at age 60. His choices are 100%, 75%, 50% and five-years certain benefit for spousal benefit. He wants to take the five years certain which is $500 more a month, then the 100% spousal benefit. He said we should take out a 20-year life insurance policy on him for me, if we do the five-year benefit. So, then she said, Suze, what's the smartest thing to do? What if he decides to divorce me? Where do I stand? There you go. That's what Terri is worried about. Well, Terri, what can I tell you here? I mean? I can't tell you how you know in almost every book I've ever written, I talk about this. How if you are being offered a pension and your pension is offering you different joint and survivor benefits. And for those of you who don't know what we're talking about here. Let's just say you were going to retire from a company, and your spouse's benefit would be $2,000 a month every month for the rest of their lives, but upon their death you get absolutely nothing. Or they could say, all right, we'll offer you $1,500 a month every month for the rest of your life. But upon your death, your spouse will get $1,500 a month for the rest of their life. That is 100% joint and survivor option. The same thing as you know, you get $1,000 a month and you take a 75% joint and survivor option, spouse gets, you know, $750 a month. That's essentially how it works. So, Suze, can you just tell everyone specifically to Terri's question? What would the five-year certain mean? It means that um that if he were to die, let's say they took this right away, then usually the payments will go on for certainly at least five more years and for more money if she dies right, so he takes the 50% joint and survivor benefit. So, now let's just say it was $2,000. She gets or you know, the spouse gets $1,000 a month. He dies, she's getting $1,000 a month. But all of a sudden two months later she dies, the five years certain is that they will pay $1,000 a month, every month for five years. So, she will have collected totally for five years even though she may have died. And that will go to her beneficiaries after that, nobody gets anything. But it's only five years after if she dies as well. Here's the bottom line though. Honest to God Terri, I would get the 100% joint and survivor option. I would get the 100% joint and survivor option. I can't even say it enough. Remember, I did the retirement planning for Pacific gas and electric for years where they were offered the 100,75 just like this. Okay, and those that did not choose the 100% joint and survivor option are suffering so much today, I can't even tell you. Basically, all I can do is tell you there is no way he's 60 years of age in 20 years, he's going to be 80. My mother lived till 97. There's no way if he's healthy that chances are he's going to die before 80 or at 80, he'll live till 85, or 90 or longer. So, no don't substitute a term policy. Don't do it. Take 100% joint and survivor benefit. Okay. There you go. Next question is from Jose. Suze, my wife and I have an AGI, that does not allow us to contribute directly. An AGI is what KT, Adjusted gross income. Want a kiss? No. Allow us to contribute directly to a Roth IRA, I know about contributing to a traditional or rollover IRA and then doing a Roth conversion which is called the backdoor, everyone. However Suze, I have an IRA that will trigger the pro-rata tax. My wife doesn't have an IRA. But I would like to do the backdoor Roth workaround for her. Is that possible? Or do they take into account my IRA for the pro-rata rule. Well, there you go. Everybody this is going to be Sunday's topic. I should have made this your quizzie. I wouldn't know how to answer that. I think he can do it, but I don't know why. I just think that because I think he can do that. All right. So yes, Mrs. Travis is correct Jose an individual retirement account belongs to the individual which would be you. And since your spouse does not have an individual retirement account or any pretax retirement account outside of her 401K. Yes, you can currently do a back door IRA for her. You know they're thinking about getting rid of these, everybody. You'll learn more about that on Sunday but yes you absolutely can do that and by the way the pro-rata tax that he's talking about. If you listen to past podcasts where I do an in-depth explanation of why you would never want to do a backdoor IRA if you in fact have money outside of a 401K or a 403B or a TSP, and it's in a pretax IRA, sep IRA, simple IRA, IRA rollover why you would not want to do that? Because it triggers the pro-rata tax. Listen to a past podcast and you'll understand why. All right. All right, that was a good answer. Suze, this next question is a little bit sad. It's from Patti and her mom who has a terminal illness and she's not doing well, asked her daughter and son to actually email you for some advice and they don't think she's going to be with them for long. And she's worried. And Patti said my mom's worried that my brother and I will not get her assets, and we'll have to go through a lot of problems with probate. She has a couple IRAs which we are the beneficiaries for she has an LLC partnership, a couple of bank accounts worth about $40,000 and she owns her home. She wants to create a revocable trust. My brother and I are not concerned about the probate hassle, but the financial worry is concerning her. So, she's asking how could you assist Suze? So, that mommy doesn't have this on her mind? I think they should do the revocable trust. You do, do you? Yeah, get it all figured out now? You should see her face, wait a minute why? Listen to what I'm going to tell Patricia, first of all? Yes. KT is right. Which is why I gave her an approval and a denied, you know why not just do the must have documents. You can do it right on the computer with her and everything. But even after you've done the must have documents, you have to fund the living revocable trust and funding it means you go to every bank that she has and you transfer it from her name into the title of the revocable Living Trust. The IRA's where you are the beneficiaries. Fine, no problem. You will avoid probate there because whenever your name is on something as a designated beneficiary, it does not go to probate, but back to her bank accounts and home, I'll get to her home in a second. Ok. So, for now, I think the easiest thing to do at this point in time, especially if she has less than six months to live. Just to put her mind at ease, and then when there's a little bit of time after you've put her mind at ease, then maybe you can do the revocable trust if you want to. But here's what I would be doing exactly if I were you. I would be transferring the house to a transfer on death and put that in there. So, that upon her death it immediately goes to you. Where do you do that? At a title Company. Right. And you know with all her bank accounts, they should all be pay on death. The limited liability company partnership, on an owner finance of you know of some real estate. Now that one's a little bit more difficult because the partner of that partnership is obviously your mother. And so that's not something that can pass as a pay on death. So, that is where a living revokable trust would come in because the LLC would be in the name of the partnership and the partnership would have you as the beneficiaries after she passes. So, that would avoid probate there. I would however on one of her accounts when you are in fact changing everything to a pay on death account, is to make one of you on title as joint tenancy with right of survivorship. So, in fact, if Mommy doesn't die right away or as soon as you may think but she needs money and she can't write checks anymore and she can't pay bills, you have access to that money to pay all her bills for her. And a lot of people just do power of attorney for finances. But some banks will not accept them. So, protect yourself by having a nice sum of cash as a joint tenancy with right of survivorship account with you or one of your siblings or whatever it may be your brother. So, that if mom needs money to pay the bills, you have access to it. So now if you do that, your mom won’t be as worried and if she's not as worried she will be happier in her last months and that's what you want to do. So, get to it Patricia. Yeah, that's I think that's the whole goal here is keep mommy at peace. That's all. All right. Next question is from Katie. On the podcast, you say that you should fund your 401K up to the match and then fund your Roth IRA. If I do both of these things and still have money left over, where should I save the extra money for retirement or should I invest elsewhere? No, you go back then and fund your Roth 401K. It's a Roth right, KT, your Roth 401K all the way to the maximum that you possibly can, which could be $19,500 or $26,000 depending on age. Okay, there you go. Next question is from Julie. Hi, Susan KT. For the first half of my working life, I've worked in the private sector, making pretty good money. About six months ago, I decided I've had enough and took some time off to clear my head and start over. Now I'm working in the public sector, doing something pretty different because of this change, I'm eligible for much better benefits and a pension. Now, this is a really interesting email because she said, my issue is I can't manage to see past the fact that I make half of what I used to as a salary. I’m married, my house is paid off. I have no debt, our only son is in college. We live pretty simply. I expect to retire in about 20-25 more years. How do I see past the small figure on my paystub or have I made a financial mistake in the long run choosing benefits over salary? Mm That's a good that's a good question. What do you think? So, Julie listen, I would probably answer this question differently seriously if you had five years until retirement and maybe you didn't have enough money and you were just, you know, wanting to spend these last five years working at something that you like, but you don't have enough money to live after that. But that's not the case here Julie. You have 20 to 25 more years to work. Do you really want to spend 20-25 more years working at something that you really didn't like that, you needed to clear your head from and start over? Really? I don't think so. Can you put a price on doing something that you love that brings you enjoyment that makes the world a better place that is really working to meet the needs of the people and the places and the times around you Julie, can you put a price on that? I don't think so. And the mere fact that you still have so many years to live and most likely insurance and benefits and all of these things that you now get, as time goes on, are going to be more and more and more expensive. So no, you did not make a financial mistake. You did not make a personal mistake. You probably made one of the best decisions of your life. There you go. I think she did too. So, this next question. Have you ever wanted to do anything like that? No, because I've always worked. I've always loved what I've done, bingo. Yeah, I love what I do. Did you hear what KT said, all her life and she worked really, I have to tell you when, when I was in my mid-thirties with Ogilvy advertising and I was one of their managing directors. I loved that job. I was offered by clients and by other investors to open a business for me. I never wanted to, but I was offered your own advertising agency. Oh yeah. And I never did it. You know why? Because I was so happy. I could have made far more money. Much more money probably. And I didn't want to, I didn't want all of those other responsibilities. I loved what I was doing. I loved my team, I loved my staff and I was very proud of the company I worked for. That's my girl. All right, so Julie you're fine. So next question from Jennifer. Hi Suze and KT. I'm trying to pay down my credit card debt. When does it not make sense to do a balance transfer? For instance, I have an offer to transfer my balance but they want to charge 5% of the balance. Is there a rule of thumb there? You know, there is a rule of thumb, Jennifer and here it is, is that you never you know, want to be able to pay more in transfer fees and 5% by the way is way too high. You should never pay more than 3% in balance transfer fees. That's to start, but you never want to pay more in those fees to transfer then it would cost you in actually staying where you are in your old credit card and just paying it off. So, will you save enough money and still be paying the balance by the time you have recouped the balance transfer fees Also everybody make very sure that you understand that after that balance transfer fees, interest rate that they're offering you is up? Oh, it can go up extremely high just so you know, so um does it make sense for you? I don't know because I don't know enough about the actual card and how it works, but I most certainly would go and look to see other ones. You would go to bankrate.com or go to nerdwallet.com and you'll see quite a few other balance transfer cards that are far better than this one. I didn't know that. You didn't know what? I didn't know that the rule if there is a rule of thumb. Sure. But why would you know that? Well, I never had you don't have any credit. Alright that's besides the point. You've never had debt since the day I met. Well that I have credit, I don't have debt. You had a mortgage when I met you. Yeah, I just bought a house. Okay ready next one. I paid it off for her a few months after I met her because I loved her so much. Can I tell them the story? You can tell them anything you want. I had this fabulous home in San Francisco. I meet Suze, she didn't want me to have a balance on it and she wanted to pay it. I said okay if we do that, you now. I wanted to put her name on the title. She never ever, ever let me do that and we were together years and years before we were legally married and she would never let me put her name and by the way after we bought and paid off that little mortgage that was left. Suze then invested millions of dollars in a complete reno and rebuild of our San Francisco home. I mean millions. She still would not, I kept saying why won't you do that? And she said because KT, I want you to feel so secure that you have an asset that is worth a great deal of money, which it was and we sold it for a great deal of money. But she wouldn't do it, purely out of wanting me to always feel very, very secure. Which I still want her to do to this day. Right. Yeah, but we share everything now. I know but my main goal is to always make sure that you're really always secure KT beyond your wildest dreams. Isn’t that amazing people? It works, that works for you anyway. You know, do you think it's time for your quizzie? I have one more question which is going to affect so many people out there. Hi KT and Suze, this is from Shannon. I'm 38 years old, I'm single with no children. However, I have a seven-year-old dog who I love dearly and would do just about anything for. I have heard you talk a lot about how to save and plan for various dependence including children, elderly parents and even ourselves and retirement. But what about pets, Suze? My dog has had some health problems over the years resulting in unexpected high cost. How can I ensure I am planning and saving adequately for all of his needs including the unexpected veterinarian bills, doggie daycare and even end of life comfort care? What are your thoughts about health pet insurance? Oh, my dear Shannon. So, you know it's interesting because I've talked to my veterinary friends about this and you know one in particular, always you know says to me I love pet insurance, I love it Suze and that she really wished that everybody had at least 3,000 in savings you know for their pet. In case something happens to come up, because you know an average emergency room visit for a pet is about $1500. So, really the average cost for a pet is really about $100 a month if you think about it. So, if you really want to protect your pet and make sure everything's okay then it is really up to you to make savings for her. Maybe your number one priority over yourself. That's something you have to think about girlfriend or split it equally. But again, the sad part is that you know not many people have pet insurance, maybe 2-3% of the population in the United States of America has pet insurance and you really should start when the pet is younger and healthier because then it's cheaper. So, it's like people insurance, yeah but you really should look into it anyway even though your doggy is seven years of age, however you're going to have to pay the invoice upfront. Just know that this is how pet insurance works, you go in, you know have a procedure done to your animal. But you have to pay the bill up front and then the pet insurance company reimburses you. So, you still need to have that money to bridge that gap. All right. It's that time, everybody. I can't wait, I’m ready. I missed It two weeks in a ruffle. I know. So, this quizzie for this week is from Deb and she says hello Suze and KT hope you are all safe and well. I think we are right? Yeah, we're great, hurricanes I think everybody are over. There are no storms. It's beautiful. Again, I don't have to be a nervous wreck every time I see a hurricane coming our way. But I'm much happier now. Anyway, Deb says I understand the limit on I bonds is $10,000 per year, again and I bond is issued by the United States government is known as a series I bond, and I stands for inflation. Which my husband and I purchased through a revocable trust. Here's the question everybody, I'm wondering if we can purchase $10,000 in our individual names. Our trust uses our social security number as our tax ID. So, the question is this, given that the maximum that you can have per person is $10,000 per year in most cases, can Deb have purchased $10,000 in her individual name. Can her husband purchase $10,000 in his individual name? And given that they've already purchased $10,000 in the trust. Given that the trust and their individual accounts share the same social security number. You can't do it. You can't share the same number. But if the trust was like my trust and had an had its own account number, then that works because I know the answer to this. The answer is no Deb. You can't do it. But KT did it. Right and Suze did it because we have individual Social Security numbers and our individual trust, my trust, Suze's trust has its own account number. So that's absolutely legal fair and a great way to save money. But that's a great way to invest your money. Deb and her husband cannot do it because all of those entities share the same social security number. Right? That's why it's a great reason to have a trust that everyone should have a trust. Then you can double up on series I bonds. However, if you want to get the most state of the art living revocable trust anywhere. Plus, all the must have documents. Just go to suzeorman.com/offer and you can pick them up there, $2,500 worth a state-of-the-art documents. Are you kidding me? For like $69 and you can share it with your family members. All right up to you. You know KT next time pretty much we do this. The Alliant credit union sweepstakes will be officially closed. Can you believe it? If you haven't done this, people just go to myalliant.com, check it out and do it now. Open it join the sweepstakes, open your account before getting $10,000, $5000 dollars and 5 $1000 winners. Are you kidding me? Chances are great to win. So do it. So, we went a little long this time, KT, but it's okay because you weren't on last time. Yeah, I mean, yeah, we could make a longer one. This is we'll let this one go because you're so cute this one. You know, while you were gone, I changed back to the old way that I was signing off, right? Because you know how you want to sign off. I love people first, then money then things now you stay safe. But now you like, I like and let's do it this way from now on. Okay, KT deal, pinky swear? No, we'll see. All right. So, until next time everybody you stay safe, you stay strong and you stay secure. All right. See you on Sunday. Bye bye.
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Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
I have checked all the beneficiaries of every investment account and insurance policy within the past year.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.
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