Investing, IRA, Must Have Documents, Retirement, Roth IRA
October 14, 2021
Listen to Podcast Episode:
On this podcast of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners Sheena, Jodi, Tina, Rosana, Terri, Corey, Eric, Laura and Beth selected and read by KT. Plus, a Quizzie, sent in by Kimberley.
Sheena - Where should I put my inheritance from my father?
Jodi - How can I help my teenager start investing?
Tina - Where should I buy term life insurance from?
Rosana - Will I still be able to convert money into my Roth after the new Tax Bill passes?
Terri - How can I equally distribute my trust to my family members?
Corey - Should I own index funds on top of my active managed funds, in my investments?
Eric - Would it be wise to maintain a limit, sell order set to the average cost of the fund, as a way to protect myself from losses in investing?
Laura - Why should you sell your most recently purchased funds first and also sell stocks that went down, to lower your capital gains tax burden? Isn't the whole point of investing to realize your gains?
Beth - Can I do a backdoor Roth from my IRAs, even though I no longer have earned income?
Kimberley - Does the 30-day wash rule apply to IRAs and Roth IRA transactions?
October 14th 2021. You know what today is the day after the Alliant sweepstakes has closed everybody. So congratulations to all of you who participated in that. I can't wait to see. I can't wait for you to announce the winners. Right. I love that. Anyway, today also is asked Suze and KT anything. So, all right, Miss Travis, I'm gonna open with an email that I got that I thought was really fun. This isn't a question, but it's a request and it's from Nick and Nick is asking that we give him and his husband a shout out to congratulate them on their anniversary. His husband's name, Jeff. So, Nick and Jeff. So when we do that, should we say Nick and Jeff or do we just say that? What do we say? Happy anniversary boys. Nick and Jeff. There we go. May you only experience as much love and happiness as both KT and I have over these past 20, some odd years. All right, next KT. Okay. Hi Suze. Hope you and KT are doing well. Thank you for your wonderful podcast. I don't have so much a question as I have a comment or observation. My dad is getting ready to give both my sister and my part of our inheritance wants his commercial building cells. I remember you telling a listener that inheritance is only for the person it is for and really should not be put in a joint account. So this is what I'm doing with the $90,000. It's a lot of money. I told my husband about it. He's absolutely fine with it. It's funny how guilty I feel about this. I feel like because we share our finances investments. I should also be sharing this anyway. Suze. What's your thoughts? So I'm not exactly sure where she put the money. But here's what everybody has to understand in terms of what I meant by what I said. Not that you shouldn't share it. It's just that it should always stay in your individual name. So if you get an inheritance KT, let's just say you got an inheritance from somebody. That inheritance was given to you. It was not given to us so that money needs to go into an individual account in just your name. That way, if ever we got divorced or something there'd be no and ifs buts about it that that money was yours and yours alone and not open up to be split because of divorce. However, just because my dear Sheena, it's in that separate account in just your name, doesn't mean that if you want to use some of it for your husband and you to either go on a vacation or go out to eat or buy something or do something like that. I don't have a problem with that whatsoever. But just be very careful because too many times now I have seen inheritance come in the person that comes into they put it into a joint account. It's a 50/50 split at that moment in time. It's legally then owned by both of you and eventually you get a divorce and there goes half of your inheritance. So that's all. It's not that you can't share it. It's just that ownership always has to be in your individual name. Okay, that's clear. I'm glad you said that because I absolutely thought why not share it but for that reason alone. But you have to be careful how much you share it. I can tell you stories you don't even want to know. I can imagine. So this next one is from Jodi and I love that Jodi 17-year-old daughter is taking a personal finance class at school and she loves it and she's asking Jodi a ton of questions. So here's what Jodi is asking Suze. My daughter would like to open her own investment account. I'm wondering if you can recommend best options. She has a part-time job. So we're talking about investing small dollars in slices. Are there any products appropriate for teens? Yeah. What I would be doing if I were you my dear Jodie is I would be opening up right here and right now a Roth IRA for your daughter now she's only 17. So for the first year it has to be a custodial Roth IRA when she turns 18 it can be in her individual name and within the Roth IRA is where you would buy slices or whatever it is that you want to purchase. The best place to do. It would be at a discount brokerage firms such as Charles Schwab, Fidelity, one of those where you could easily buy slices, and for those of you who don't know slices are where you buy a sliver of a stock. So if you want to buy Amazon rather than spending $3,200 because maybe you don't have that to buy one share of Amazon, you get to buy a slice of it for $5 for $10 but you still get to own it. So that is exactly what I would do if I were you. And the reason in a Roth IRA remember, any money she originally puts in, she can take out at any time regardless of her age or how long it has been in there without taxes or penalties. Also, remember the rules, the maximum that you can put into an individual retirement account, whether it be Roth or traditional is $6,000 if you're under 50, $7,000, if you're 50 or older, or 100% of your earnings, whichever one is less. So if your daughter earns $500 this year, that is the maximum that she can put in to a Roth IRA. That's what I would be doing if I were her. Okay. Next question is from Tina. I hope this email finds you healthy, Happy and safe. It does. It's my husband and I are shopping for term life insurance. I've already received some quotes but I want to know if it's necessary to get additional quotes and shop around. If so. Is there a company that you can recommend? My favorite company really to shop for insurance quotes, term insurance quotes is Select Quote and maybe that's because they were the first ones who did it 30 some odd years ago and I have such an attachment to them because they've always quoted legitimately. They've never done a bait and switch where they quote low and then you go to apply and now you have to pay more.bSo Policy Genius is fine. You might want to try selectquote.com but here is the key. No matter where you go you get the one that's the cheapest because each one of these quoting services will give you five quotes from five different companies. Then you're asking yourself which one should I pick, simple. The one that is the least expensive is the one that you choose. OK Suze. Next question is from Roseanna. So Rosanna said and this is based on the school, the Suze School that you just did on the new tax proposal. Sitting in Congress. Alright this is regarding her Roth conversion in October 2019. I left my job of 15 years to become a stay-at-home mom. I worked hard. I've accumulated about $700,000 in my 401K. With that job it's all in pre-tax dollars. I rolled the money over to a traditional IRA when I resign. If the new tax proposal in Congress is enacted, will I still be able to convert the money to a Roth until 2031? As long as my household taxable income stays under $450,000. All right, you need some clarification betcha you do, Roseanna and everybody listen to me. The $40,000 and the $450,000 income limit that I was talking about on Sundays podcast was simply the limits of income when your tax bracket is going to now go up to 39.6% to the highest income tax bracket. If they pass the new bill, it has nothing to do whatsoever with Roth conversions. There's an income limitation, obviously to qualify for a Roth but there has never been an income limitation since they got rid of it years ago to convert money. So it does not matter whether you have earned income, you're earning income, how much money you're earning. It doesn't matter. If you have money in a traditional IRA a that you have never paid taxes on, you still can convert it anytime you want. Just knowing that you will owe ordinary income taxes on it at the time of conversion and that money has to come from outside of the money that's in the account that you're converting, you just need to take that into consideration. The new tax law that's been proposed. We'll see or the bill, I should say that's been proposed, we'll see if it passes or not. They are just trying to get rid of back door Roth IRAs that's all. They aren't really talking yet about conversions from pretax to after-tax Roths, they're talking about backdoor conversions and other after-tax conversions that they want to get rid of. So it does not apply to you. Okay, I still find that Roth business a little bit confusing. You're going to find it far less confusing KT and get rid of it if they get rid of some of these things that people are doing now, you know, somebody wrote in and they said they heard the podcast on Sunday and I said there's some things that are good about and some things that are bad about it and all the things really that I talked about on um Sunday’s podcast, were not the things that I don't like about it because there's only so many things everybody that I can talk about in 30 or 35 minutes without your head absolutely spinning So but the things I talked about on Sunday are all things that I actually think should happen. I do think that the child tax credit should go on forever. I do think it should be monthly. So that I like I also think that they should raise the limits of income so that more people can qualify for the child tax credit, which might happen in 2023 than currently do today. I like that they're thinking about getting rid of the backdoor Roth IRA I don't think that people should be allowed to do it even though I've told everybody to do it for years. It's been legal. And I was always like, you know though laws are laws and you know, they should get rid of that. They should. So most of the things that they're talking about, I actually like right now. All right. Next question is from Terry and Suze? Terry obviously has your Will and Trust Kit. And the question here is if I want my trust distributed by percentages to friends or relatives, can I just use percentages or because I don't want their inheritance from me to go any further. If they were dead at that time, would I pick equal shares to lapse. So wait, here's the answer from Suze. But um right. I hope I read that correctly. Did it sound right? Yeah, it sounded right. So what Terry was trying to say is that Terry did purchase our must-have documents. within there. You have to make a decision Who number one do you want to leave your money to or your assets to upon your death. Next You know who you want to leave it to. The next thing is, how much do you want to leave them? And what do you want to leave them? And what happens if you designate somebody in your trust and that person dies before you, then what happens or that person dies with you? You're in a car crash together? What happens to the amount of money that you left to them now? There's two ways to leave money to people equal shares mean let's say I have three kids and I want them each to have equal shares of everything that I have. And then what happens is if it says equal shares to lapse, what that means is I have three kids, Bobby Gary and Suze and I've left them each equally the same amount of money, but one of them dies then that share lapses and then the money that's left is divided equally between the other two that are remaining. That's what that means. The other way to do it is through percentages that you give them a percentage of everything that you have. So I want Bobby Gary and Suze to each have 20% of my estate. And so that is another way that you can do it versus an exact dollar amount. So here's what you have to understand. If you select percentages the kit provides. So they must have documents provides that if one of your beneficiaries dies before youtheir share is added back into the others provided to their percentages. So just like equal shares to lapse. If you simply do it by percentages and that person dies, then the other beneficiaries, it goes into their pool and they just simply get more. It would not go to their relatives. Just that simple. So it's just up to you as to how you want to do it. But both ways are good. Um, I've done it just so you know, in my own personal trust as well as KTS, we've done it with equal, we've done it with actual dollar amounts to go to specific people versus percentages. Because you know, the other thing is you can leave it as a percentage in your state can grow larger and larger and larger and you may end up leaving more money to some people than you really want to. So just something to think about. And by the way, I'm just going to say for those of you who want to take advantage of the must-have documents in January. I think it's January, KT, there will be a price increase. A significant one on these documents. So if I were you, I would take advantage of it now and go to suzeorman.com/offer. And that is where you can pick up $2500 worth of state-of-the-art documents for $69. It will not be there for that much longer. Yeah, do it. Everyone needs that. Okay. This next question is from Corey. Corey is doing great, Suze and Corey turns 40 on Thanksgiving day. But here's what he has to say. First and foremost, I have to say how much I love your podcast and never missed them each week. I've been a Suze follower for 20 years and I have used your advice to build my current net worth. So Suze, if you saw Corey's current network, you'll be very, very proud of him. But I don't need to disclose that because his question is this, my financial question is concerning active managed funds versus index funds. I only have active managed funds. Am I making the right decision? KT just put your email in front of me and I see many of the funds that you have and you have so many funds. You know, um a lot of funds here. But here's the thing that you need to understand every mutual fund, whether it's a managed fund or an index fund. What's the difference. A managed fund has a portfolio manager and that person decides what they want to buy or sell in that portfolio. It is totally up to their discretion or a team of managers period. An index fund simply buys and sells an index, whether it be as a Standard and Poor's 500 index or the Dow Jones industrial index or the Russell 2000 index or the total stock market index. They buy the index and whatever is in the index is in that portfolio period. Because of that every portfolio who has a manager and all mutual funds have a manager that index fees or the management fees on index funds tend to be very small. If anything. Like .04%, hardly anything. The expense ratio or the management fees on managed mutual funds tend to be a lot higher and that can absolutely affect the performance because you're the one pain that management fee. So if I were you my dear Corey, I would go online. You go to Yahoo Finance, you can go to anywhere CNBC and put in all the symbols of all these mutual funds that you have and look at what the expense ratio isthen, and all of you should be doing this which is why I'm going into detail with it and then what you should do is take a look at what their return has been after fees and compare that to what the indexes,returns have been after fees and I'd be surprised if your funds have actually beat the index funds, because normally index funds can beat managed funds at least 95% of the time. Now obviously there are years that that can change but overall in the long run. Also you always want to make sure that you have a no load fun, you never ever want to buy a loaded fun and a no load fund is a fund where there is no fee to buy or sell it period, there's no load, no commission. A loaded fund usually has about a 5% fee for you to buy it or a 5% for you to sell it. You would know that you had a loaded fund by the letter A or B after the name of the fund. You never, ever, ever want to buy a loaded fund. I personally think it is a tremendous waste of money and they make no sense to me on any level. You only want to buy no load funds, whether it's a managed fund or an index fund that's going to have to be up to you. I would always go with an index fund. Okay, so on the same theme Suze, I have a question from Eric, I love that these men are so smart and interested in really learning this with a deep dive but Eric is relatively new to investing. He's been investing here and there in mostly index funds using Robinhood since January investing money that he could lose but obviously would prefer not to. So he noticed there's an option within Robinhood to set a limit, sell for a period of 90 days which would be initiated if a fund drops below a set price. So here's his question, Suze, would it be wise to maintain a limit, sell order set to the average cost of the fund as a way to protect myself from losses. If the market drops, then I could also possibly try and buy back into the fund at a lower cost advantages, disadvantages. Yeah. So you're getting technical on us today. You know the ones that you've chosen. All right, well good because people should learn this stuff. Eric I don't like limit sell orders. And again, a limit sell order is that you own something and you can put in an order any time you want to sell what you have, whether it's a stock mutual funds exchange traded fund, it doesn't matter. And sometimes maybe let's just say that stock is selling at $45 a share and you want to sell it. If it goes below 40, you put in an order to sell that stock at 40, and 40 is the limit price. So it has to hit 40. If it goes below 40 you get to sell it Alright. The reason I don't like that is sometimes a stock can dip very fast and go down to 39. Especially in markets like this, you've sold it now you can't it's gone and before you know it in the same day it's back up at 45 and you're out of it just that quick. So no, if I were you I would not use limit sell orders at all. If you really want to watch your stocks, watch them and make decisions what to do on with them day by day. But do not forget in these markets how much stocks have gone down and then how stocks go right back up. And don't forget if you sell something at a loss and it's outside of a retirement account, right, you cannot buy it back within 30 days again because you can't take a loss. You should listen to last Sunday's podcast. You can't take a loss off your taxes and buy it back right away. Unless it's after 30 days. And keeping with the same theme, Suze, This question is from Laura. In one of your recent podcast, you advised on how to sell shares of stocks and funds? I've heard others say the same thing you did that you should sell your most recently purchased funds first and also sell things that went down as to lower your capital gains tax burden. But I never really understood that. Yes, you would pay lower taxes. But isn't the whole point of investing to realize your gains? Why not sell the shares that have made you the most money? Isn't that the point of investing? This is a great question because people should have been your quizzie. I, no, wait, I would think it's fine to just suck it up and pay the taxes. You're enjoying the investment gains. Suze, am I missing something? Well, guess what? My dear Laura, I think you are missing something, because the goal of investing obviously is to make money but not to just enjoy your gains which means you sell out and now you have that money but it's to make decisions of. Think of Apple, think of Amazon, think of how rich you would be today if you never had sold those stocks period. So I actually think the goal of investing is for you to invest in something that goes up and up and up and up and up and all the way back down and you've kept it and it goes all the way back up again and 10, 15 years later. Oh my God. The amount of wealth that you would have if they're good quality stocks, it would be amazing. But some people get into a situation where they need to sell maybe they don't even want to sell but they have a need to sell some of their stock, not all of it because they don't need all of that money. In that case, you have to look at how long have you owned that stock because let's say you bought a stock eight months ago and now it was going up and you really liked it and maybe you bought more six months ago than five months ago and it's been going up and up and now it's two months ago and now you need some money you wouldn't want to sell the ones from eight months ago because that still would be a short term gain because you haven't owned it for over a year. So you would pay ordinary income tax on a large amount of money possibly on a stock that you don't really want to sell. So if you're selling the entire stock, that's another thing that it doesn't really matter. But if you're just selling shares of a stock, not all of your stock, you want to sell the stock that produces the least amount of tax ramifications at this point in time. That makes sense. Because the other thing, I just have to say one other thing, Laura, so you have a stock and it has tremendous gains in it and you never want to sell it Laura, unless they change the tax laws one day you die, you pass it down to your beneficiaries. They now get a step up in basis on all of it and they get to sell it and not pay any tax whatsoever. So I'm going to stick by how I would do it. And yes, the goal of investing right is to, you know, enjoy your money. And that's the making the most out of it. But sometimes making the most out of your money means not selling that, which you owe the most taxes on. All right, so, Suze, this next question is from Beth dear, Suze and KT, I have a few questions about backdoor Roths I'm retired with both Roth and IRA investments. Can I do a backdoor Roth from my IRAs even though I no longer have earned income. If so, should I move relatively small amounts, meaning $10-15,000 each year via the back door process in order to increase the Roth and reduce the IRA for my children when they inherit? I would take out a bit extra as cash in order to pay the income taxes due, so that goes on and on and I have to go on and I answer this, you'll have to go on. I think you need to kind of nip it in the bud as they say right? Beth and everybody let's get something straight right now. Currently, you do a backdoor Roth IRA only because you don't qualify for a contributory Roth IRA where you can put money in every single year after tax because your adjusted gross income is over $140,000 if you're single, $208,000 if you are married. Finally, jointly you no longer qualify for a contributory Roth IRA. And again I say the word contributory because I want you to understand that's the type of Roth IRA where you contribute every year as much as you possibly can. Up to the maximum amount allowed. So you have retired, you now have this money and you have it in an IRA rollover and now you want to get it into a Roth the way you would get it into a Roth because you have never paid taxes on it is simply convert it into a Roth a regular Roth IRA period, you don't have to go through the back door. But when you do convert it to a Roth IRA, you will owe ordinary income taxes on it. So the question becomes your 66 years old right now, you don't have debt, you have long-term care insurance. I'm looking at a few of the things that you have in here, right? And you're more concerned about your kids, and making sure that your kids don't have to pay taxes on this when you die in blah blah blah blah. I'm more concerned about you girlfriend, because I'm looking at the amount of money that you have here and even though it's a nice amount and you own your home outright, things happen as we get older. And what set off the alarm is that you would have to take money out of your IRA to pay the taxes on the conversion. So that means you're converting more than you would want to simply so that you have tax money to pay, which means you don't have enough money outside of this to pay taxes. So no, I think this is a horrible idea and I don't think you should do it on any level at this point in time. There you go, Beth. You know, I'm glad I selected this because I thought all right, people really need to understand a lot about these retirement accounts. Yeah, they do. But you know that's gonna need to start using that money possibly later on if she really didn't need any of it and she had extra money and she put away $10,000 and converted that every year. And she had the money to pay taxes on it cause she's in a low-income tax bracket. Okay, what concerned me? So if I read this wrong Beth you take it from there. Right. But is that if you didn't have the money to pay the taxes on it, you can't afford to convert it. Just that simple. All right. You know, it's my time. It's KT's quizzie time. I have made this so easy for you and everybody else. And actually I gave a hint in one of the earlier questions I answered as to what the correct answer is for this quizzie. Is it a yes or no answer? Yes, it's yes or no. All right, this is from Kimberly. Alright everybody, it's KT and your quiz each time. Does the 30 day wash rule apply to IRAs and Roth IRA transactions? If you don't watch something in 30 days, your trouble. Remember you didn't wash your jeans when you had the radio show? That was so funny. Okay, so what is the question again? Does the 30 day wash rule, which means if you buy something and you sell it at a loss so that you can take it off your taxes, you cannot buy it back again for at least 30 days. You can't even buy something similar to it. That's true. So does the 30 day wash rule apply to Roth IRA transaction without a shadow of a doubt? You're positive? Wait a minute. You just said I can't this has to do with the stocks. Okay. Inside of my invited a IRA and a Roth. You do not pay taxes on it when you buy or sell it. So if they sold it within their Roth or their traditional IRA there would be no tax loss whatsoever because when you buy so you have just you can't buy yourself outside of your. That wasn't the question. But that was this one wrong. You got this. I got it wrong. But what I got right was what you said earlier in the But if you had listened earlier, if you go back and listen to what I said earlier, I said that the 30 day wash rule only applies to investments outside of an IRA. You don't wash something for 30 days. You're in trouble anyway. People aren't going to think that's funny. Alright. I didn't listen carefully enough, but I did listen in the beginning. I thought we did quite well today. All right. When are we going to announce the winners? I assume in about a month. Right? They just had a few weeks. A few weeks. We'll see. So they just have to check everything's legitimate. Everything is whatever. I can't wait to find out who won. I'm so excited. A lot of money. Well, seven lucky winners. I love that. However, remember you can always be a winner in your own way by simply opening up an account and Alliant credit union by going to myalliant.com and you can still take advantage of the ultimate opportunity savings account. Where if you put $100 a month in for 12 consecutive months, you get $100 at the end of those 12 months. Guess what? That's a 16.7% return on your money guaranteed to you. If you just follow the rules, I would take advantage of that. All right. Until Sunday. I have a little bit different of a Suze school for you. So tune in because I think you're going to find it interesting because I do. KT's wondering, what is it? I am not telling us a little hint. Give us a little teaser something. It's somebody wrote in an email. Somebody wrote in another email and I'm going to answer and teach the first person who wrote in an email as to why her husband is so seriously wrong by demonstrating what happened with the second email. Real life scenarios and something you really all need to listen to. I want to be part of it. All right, everybody. Until Sunday. We want you to remain safe, strong and secure. All right, See you then. We love you. Bye-bye.
Credit & Debt, Saving, Investing, Retirement