Podcast Episode - Ask Suze (and KT) Anything

Home Mortgage, Investing, Retirement, Roth, Student Loans

November 18, 2021

Listen to Podcast Episode:

On this podcast of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners Donna, Mary, Marilyn, Tara, Margaret, Rose and Mike, selected and read by KT.  Plus, a Quizzie.

  • Donna- How should my partner and I split household expenses?
  • Mary - How should I invest the money I have in my Vanguard Roth IRA?
  • Marilyn - Should I pay off my student loan debt or wait for my PSLF to kick in?
  • Terra - Should I convert my traditional IRA into my Roth? Is there a 10% penalty?
  • Maragaret - How can I learn about the investments my advisor wants to make for me?
  • Rose - Should I pay off the mortgage or refinance?
  • Mike - Should I open up a sep 72T?
  • Amy - I purchased a series I bond before November 1st, am I stuck in this interest rate?

Podcast Transcript:

November 18th, 2021. And guess what is KT is back for ask again, Suze and KT anything. Finally, KT is back in the seat in the studio. I feel like I'm a stranger in here Suze. KT, it was a week and a half that you weren't in here. I feel like I'm strange. I feel like I'm not used to my little seat and my earphones and mic and but I just have to tell everybody. So KT, I got this little stool for KT. It was $25. Perfect. Perfect. And KT sits on that. And so, I'm looking at her on this little stool. Like you really like that little stool. The reason that this is funny for Suze is that we've gone through maybe five, six different chairs. All ergonomically correct. And we've purchased so many different chairs for Suze to find a comfort level as she sits in front of her mic. But me, I just like my little folding chair or now my little stool. Perfect, Perfect. Anyway, we'll get a chair for me one day that works. Maybe it's just my body, KT. Maybe it has nothing to do with a chair. I think you don't like to sit you are a lounge lizard. Right? If I could do this from leaning in my bed, I would, however, welcome everybody. As I was starting to say, this is the ask KT and Suze anything podcast. And this is where if you have a question, just write in to ask Suze podcast. That's asksuzepodcast@gmail.com. And if your email is chosen, your question is chosen, we will read and answer it on the air just like we do right now. But every once in a while I do respond to you personally. I'm so excited, you know why KT. You know what today is? Today is your special date. Yeah, I have a date this afternoon actually, actually this evening with William Shatner and he's interviewing me to ask me questions for his show. So, I'm so excited. Oh my goodness. And when that show actually airs will make sure you all know about it because it's gonna be fun. I can't wait to hear what you two talk about. So are you ready? Let's get to these questions. They've been piling everybody. Quite a stack of questions. And the first one is from Donna. Hello, Suze and KT. I have a general question regarding finances. My partner and I plan to get married in May 2022 and I would like your opinion on household expense contributions? I make $325,000 a year. My partner earns $125,000. As far as Suze's concern. Would this indicate that I should pay 62% of all bills. What about luxuries like vacations, home improvement expenses and eating out etcetera? Thank you. That's from Donna. So Donna, it's hard for me to answer the question is the exact percentage that you should pay. But you should first add up all of your household expenses, whatever that may be, add up your take home income and your partner’s take home income. Because you don't say here what that is. You just say what you earn. What's important is what you take home, add those two figures together and then divide that figure into your joint household expenses. And that is the percentage that each one of you pays. However, the real question is here, what about luxuries like vacations, home improvements, expenses and eating out. KT, what would you tell Donna? Donna you're married, it doesn't matter. So, you're going to get married before you get married and after you're married? It doesn't really matter. Suze And I don't look at each other and say, oh well this week you buy dinner because you make more money than me and next week I'll pay for half of the we don't do that, we just go out. Right? So here, here's the thing I would tell you Donna is this, if you really love the person that you're about to marry, if you really trust this person, Then does it really matter? You make seriously a whole lot more money. Almost $200,000 a year more than this person. Is it really going to kill you, that if you paid for dinners, if you paid for vacations. If you did things like that, it won't kill you. So, it's you work that out between the two of you. But I do think it's important that you do pay a percentage wise into your joint mandatory expenses so that it feels equal. One really important thing, I just want to say Donna, is that just because you make more money in this relationship does not mean you have more power. Be very careful because without you even knowing it, you could adopt that attitude. You can say little things. You can do little things like wait a minute, I'm the one who's paying for most of the things here. Don't do it, don't do it. Don't do it. One of the reasons and I believe this, that KT and I now have lasted so fabulously over these more over these 20, more than 20 years now. Is that it wasn't like that. It wasn't like, but I did this, I did that I make more money. So, just know I love this person up, always be open with them with money and treat your money even though it may be in separate accounts as if it is both of your moneys. However, with that said, what is the one word I'm going to give them advice on KT that they should both get. She's looking at me. Share. Prenup prenup prenup get a prenup. Next question is from Mary, Hi Suze KT, I have $30,000 in my Roth IRA. It's just sitting there. It's not invested in anything. Then she said Vanguard, I had transferred from my 401K to the rollover Roth IRA to manage it myself. I have my own business. You're doing a good job managing it, just letting it sit there to sit, let it sit there. That's what's called management. I have my own business and can start investing more. My husband and I have everything paid off cars, house, no debt. So, what she's asking is can you give her some advice as to where she should place this money in her vanguard account? She said at the age of 61, it's not much, but it's all I have. My husband is a retired schoolteacher and gets his pension every month. Yeah, here's what I would say, my dear Mary is, there's a reason why you have not invested that $30,000 and why you may think that $30,000 is not much. Are you kidding me? That is not only something that is a serious amount of money, a serious amount of money. And the day that you start thinking $30,000 isn't much. We have problems. We have problems. So, that's the first thing. Yes, I could tell you. You're in Vanguard. I would be dollar cost averaging, which means taking an amount of money every single month and pointing it into the Vanguard total stock market index ETF Symbol is VTI. However, you have to be willing to watch that $30,000 possibly go down 28, 25 to 20 and maybe again back up again. If you don't have what it takes to do that, then I'm not exactly sure what you should be doing at this point in time. Obviously on Sunday, maybe you heard me say that last Sunday I'm going to be talking about series I bonds again and versus TIPS. That might be something that you want to look into as well. But my recommendation would be the vanguard total stock market index ETF. But with that said what I want everybody to know is that, we've been going up, we've been going up, we've been going up. We have inflation rearing its head more than it has in 30 years. We have a supply and a demand, you know, absolute problem with materials being locked up in the ports and everything. Eventually if the Feds decide that they need to raise interest rates in order to stop this inflation, that will not bode well for the stock market. So, we may enter a stock market in six months or a year or sometime where it will absolutely start to go down. And if that happens, that's why I want you to dollar cost average. But remember when you invest in the market, you need to have at least 5 to 10 years before you want to touch this money. You don't want to put money in the market that you need in under 3-5 years. All right, everybody all right, next question, KT. Okay, this is from Maryland Green and Suze, this is about student loan forgiveness. So, Maryland's asking. I was listening to an early episode of ask Suze where a listener stated that her $44,000 of private student loans were forgiven but she later learned that the forgiven amount was taxable and she owes $14,000. I currently work for an employer that qualifies me for PSLF. She's looking at me, what does that mean? Public student loan forgiveness. And I have been looking I look at Suze like, okay, fill in the blank, PSLF, public student loan forgiveness. That's good KT. And I have been let go forward to the day that those loans are forgiven but I'm now wondering if it would be best for me to pay the debt as my annual income is $70,000 and my AGI is approximately $55,000. Thus, my annual income exceeds my possible debt forgiveness of 25,000. Stop. Stop, stop you girlfriend Marilyn. You're just, you've gotten yourself into the weeds here and you're making things 10 times more complicated than it needs to be. First, why did the caller who called in who had $44,000 of private student loans. Private student loans are the key here that we're forgiven, but then she learned that she had to pay taxes on that. You can have a student loan and it could be under the income-based repayment method, whether it's a private student loan or a direct loan or whatever it is. And if your loan ends up being forgiven, so you've been paying a small amount of money on it for 20 or 25 years and at the end of that period of time your loan is forgiven. Then, you will still owe income taxes on the amount of money that was forgiven. A public student loan forgiveness program is very different, that's where you are in a program working for a non-profit. And hopefully you have direct student loans. Private loans will not qualify you for this. But if you have direct student loans, so check it out, then absolutely continue to do it. So, if you are in an income-based repayment program within an organization that you work for and it qualifies for a PSLF. And you are in a direct student loan, just keep doing it because in 10 years when that loan is forgiven, you will not owe income taxes on it. So, all this stuff about your AGI and your things like that. Oh, please throw that out of that little head of yours and just stay doing exactly what you're doing. But check it and make sure that you have direct loans that qualify. Alright, that was a great answer. I didn't know that. Of course, you did, you just forgot. Okay, this is from Tera. Hi Suze KT. I love your podcast. I'm sure together we can really improve my financial position. For years, I have contributed to the 401K at work and as I left employer’s I transferred everything into a contributory IRA. I would now like to strategically convert positions to my Roth over the next 10 years. I have about $400,000 in the traditional and $15,000 in my Roth. Is it worth doing this conversion with a 10% penalty on top of income tax or should I just build up my Roth? Am I allowed to wait until I'm 59 and make my mandatory distributions and put them in a Roth. All of you are getting so mixed up, what is wrong with all of you? She's got 20 more years before she retired. But that's not the point. It's like Terra, you need to listen when I do a podcast, you need to listen very, very closely to what I say, not what you think I said. So, you have to understand the difference, first of all, when you convert from a taxable IRA, a traditional IRA, whether it's a rollover, a contributory, it does not matter into a Roth. There is no 10% penalty. So, where you got that is beyond me. The only thing that happens is you owe ordinary income taxes on it. You say you have $400,000 in your traditional IRA only $15,000 in your Roth. So, you should contact a CPA, and figure out does it make sense for you in your particular financial situation, depending on your income. Should you convert any of this money right now from your traditional to a Roth or not? So, they're the ones who will absolutely tell you if it's worth doing this conversion but it's not with a 10% penalty on top of income tax. Got that. It's just income tax. Also, you say should I start building up my Roth? Of course, you should. There's nothing that keeps you if you qualify for it, income wise and by the way in 2022 the AGI limits are going to go up for Roth IRAs but I'll do that in another um podcast. But what's important is for you to understand that of course you should contribute to your Roth IRA if you qualify for it, converting not converting makes no difference. You should always, if you qualify, contribute up to the point of the max in a Roth IRA. Why are you looking at me like that? Because you set up to the point of the max and I always hear you say up to the point of the match which is different. That's a different tradition because she's giving me this look with these cute little eyes of her. No, I don't get cute they are just wide. I like. What did she just say? Alright, here you go. This next one's from Margaret. Margaret first and when I read this, I said wow, Suze is going to really applaud you on the first sentence of the first paragraph, then she's going to slap your wrist really hard. So get ready Margaret, it said happy holidays, KT and Suze. I found your podcast during the beginning of the pandemic and I haven't missed a show since, but here's why you're going to get a big applause, not because of that because of this. Thank you to Alliant credit union and your affiliation with them, I've never been a saver but this year I started with your Alliant savings plan, I will have $100,000 in the account by the end of 2021. I am self-employed, so this amount represents 12 months living and 6 months business expenses. There's the applause. Wait ready getting a slap on the wrist, wait, wait, ready. Question, I fully fund all of my retirement accounts and I'm on track to stop working full time in four years at the age of 67. I have an advisor, and extra money over and above my savings and my retirement accounts but I can't seem to work up the courage to try my hand at investing on my own. I just want to learn how to analyze, invest and understand the reasons why my investment adviser chooses the stocks that she does. Now ready for this? I feel as though I'm bothering her to ask her and wonder where I should start on my own. Ready Suze. I'm taking $5,000 or so on my own and I just purchased Um $5,000 of the I bonds the other day and it felt pretty good. How much education should I expect my advisor to offer me? I can't believe she's asking this. I pay her 1% of the balance per annum and I'm invested at Charles Schwab and TD Ameritrade. Here's the thing Margaret, I don't know if it's just you and where you just feel intimidated and you feel like you always bother everybody if you ask them a question. Maybe you feel that way and so you're putting that on your advisor, or your advisor has done something that has made you feel that way in terms of you've asked her maybe a question before and she just wrote it off. However, it's now time for you to find out which one of those two things it happens to be. So, you're to call her and you to say I would like 30 minutes of your time so that I can go through my portfolio with you, for you to explain to me why you bought every single stock that you purchased for me? What are your plans for that stock? Do you have a target price of when you would sell it? Do you plan to accumulate more? What is the reason why you purchased each and every one of the stocks that are in my portfolio? Through those answers, without you then having to say can you teach me everything that you know. You then we'll start learning why your advisor chose the individual stocks that she chose. Now I'm just going to say this for everybody. If Margaret, you talk to your advisor and she didn't purchase individual stocks, she purchased individual mutual funds. So, you have a mutual fund, you have an exchange traded fund, you have a whole bunch of mutual funds and exchange traded funds in your portfolio. Then I would start to question why in the world then are you paying her 1% to do what? You could easily put all your money in the Vanguard total stock market index fund. And I'm sure you would have done equally as well or if not more so, than what she did. If it's in all these different accounts because you wouldn't have to do what pay that 1% fee to her. So, number one, you need to know what does that 1% fee cover? Why are you paying her that? And the reason you would be paying her that is for her to select individual stocks for you, not exchange traded funds that you could easily do on your own. Also, I just I know this is a long answer but it's an important one. That 1% should also never cover money that's invested in bonds. If you have money invested in bonds, that should be in a separate account that does not come under an investment advisory fee. The only thing you should pay an investment advisory fee for is money that's invested in stocks period. Got that. But try that out Margaret and see how that works. And congratulations on Alliant. Good for you. I'm going to tell them good for you. That's like a really impressive they just want to serious accolade and award about being the best of the best. So yeah, congratulations Alliant. Yeah. Yeah. Good for you Margaret. Okay this is from Rose, Suze. I have a dilemma and would love to hear your opinion. Should we pay off our mortgage of about 135,000 at 3.6%, or should we refinance it at a lower rate? As it is, we have about 16 years left as we pay extra each month. So, we have about$ 280,000 in a HYSA. Paying a whoopee 0.40% interest. Half of this money is intended to pay off the mortgage. Should we decide to do so? The other half is our emergency fund. The reason we haven't paid it off yet is because we thought we'd be moving back to our home state, but in New Hampshire by the way. But this hasn't happened yet, maybe in the next 2-5 years. So, they have a big concern, they're afraid to pay off the mortgage. And if the heist the house prices go down and they need to sell, if they decide to go back to their home state, would they be at a disadvantage with no cash to put down for another mortgage and or buy a new home? What was the other half of that money cash for? Emergency fund, emergency funds. Alright, so first of all, and also it has their ages, their near retired at 63 65. What is the goal of money to feel secure? What is the goal of money? What is the goal of money? What is the goal of money? And as you heard Mrs. Travis say, it's for you to feel secure. So, before my dear Rose, you even think about what is the best thing to do with money? It's what is the best thing for you to do with your money that would make you feel secure. Because if something happened to you, you're 63, you're 65, one of you has a heart attack one of you, something you never know what can happen, especially starting at these ages, seriously. Then you still would be responsible for that monthly mortgage payment. And whether the markets go down or whether they go up doesn't matter. And let me tell you why, If I were you, I would absolutely take $135,000 and pay off that mortgage. If you happen to refinance it, what are you going to do? You're going to say 1% and you're going to have closing costs and you're thinking you might want to sell it in 2-5 years. You'll never catch up on the closing costs by what you save. So no, you should not do that. So, I would take $135,000 and I would pay off the mortgage at the exact same time however, I would also apply for a home equity line of credit while you're still working and everything is great. Now, the reason that I would do that is that that then makes it so that you don't have to worry if all of a sudden the price of your home goes down, you now want to move. But yet you don't have this extra money because maybe you still want to keep the money you have in an emergency fund just like it is. So, now you can take out the equity that's in your home at that point in time without you having to pay interest on it for the next 2-5 years. Did that make sense to you? So, bottom line is, take the money pay off the mortgage completely and then take your emergency fund and if I were you. I would transfer it to the Alliant credit union and get a higher interest rate than you're getting right now. So go to myalliant.com. That's how you should do it. Okay. Next question is from Mike, and Suze. This question really just requires for you to explain what a Sep 72-T is ready. Well you know everything. I'm currently 55. My spouse is 58 thinking about retiring early but we'll probably just work three days a week. We just want to spend some of the money before we're too old to enjoy it. We gotta tell him this to old business, it's your wrong. Suze and I are really much older than you Mike and we really have and still love to save. And if I were 100% which I'm not yet, but I will be, oh my God, the things we would be doing right now, I can't even, oh my God, this too old business is wrong. But anyway, let's answer his question. I'm currently looking into the idea of a Sep 72 T. I currently have ready Suze, 99% of my wealth in 401 Sep or IRAs. I'm having trouble finding the details on this process and I have a few questions so I think first you should explain. Yes, I'm actually an expert on this, KT. I don't know if you know that, because when I was the advisor for Pacific gas and electric for all the people that were doing early retirement. I was the only one who really understood how 72 T and separate equal periodic payments were. I had ever heard of the 72 T. So, explain what it is. So first of all, as you know, when you have money in a retirement account other than a Roth IRA, but in a retirement account in general. You cannot touch that money before the age of 59 a half without incurring a 10% penalty if it's a traditional 401K IRA sep, which means simplified employee pension plan, which means you're an individual, you know, your are your own owner of it and all of that, then obviously you're going to pay income taxes on it no matter what. But if you take it out before the age of 59 and a half, in most cases you pay a 10% penalty. During the years of early retirement, quite a few years ago, this was starting in the nineties actually there was a law that was passed called 72 T of the IRS tax code. And essentially what that said was two things, listen very closely if you work for a company that has a 401K, a 403 B, a thrift savings plan, an employer sponsored plan, not an IRA, not a sep IRA, not a simple IRA but it's with your company and employer sponsored plan. And it was all pre-tax, that if you leave service in the year that you turn 55 or older, at that point in time, you can take any amount of money that you want from your 401K, 403 B, or TSP and not have to pay the 10% penalty. But that is only true for money that is in an employer sponsored plan. That is not true for money that is in an IRA or other individual accounts. So, we have that got that everybody. If however, you have in IRA, a sep IRA, a simple IRA then 72 T says, if you take out separate but equal payments every single month regardless of your age, if you're before 59.5. Then you no longer have to pay that 10% penalty. But it is very, very tricky. There are three ways to calculate it and you need to sit down with the CPA. But if you took out $13,000 one year, $15,000 another year, $20,000 another year, you now are in violation of separate but equal periodic payments because you did not take out equal payments every single year and you are going to be slapped with the 10% penalty. So, at your age of 55 and 58 I would definitely not start separate and equal periodic payments for your spouse at 58, let him wait a year and a half and just take out that money without having to do this. And at 55, you could do this with money that's in a retirement account at your employers, if you want to, in any amount you want. It doesn't have to be separate and equal. It can just be one year, you can take $10,000, another year $15,000, which is why it's so great if you keep money at your old employers to do that with. However, I would not do separate and equal periodic payments within an IRA, a sep IRA, or anything else you have. It's far more complicated than you have any idea and that is not how I would access that money. I would wait until I was at least 59 a half-years of age to do so. All right, KT, here we go quizzie time for you. I’m a little rusty. I bet you are. I haven't been here in the studio for a while now. So, a little rusty. There we go. Alright, so everybody, this is where I ask KT a question and now KT has to answer it, but I want all of you to play along as well because these are all questions that I choose that every one of you should know the answer to. So, with that said here we go, Amy writes, thank you for an amazing podcast. I bought a $10,000 I bond on October 25 and then on November 1st, the interest doubled for a new I bonds. Does this mean that I am locked in at the low interest rate for the next five years? I'm so sad. This was my first foray into an investment like this. So, the question is Amy, because she bought into the I bond before interest rates change even though I tried to tell all of you to wait till November 1st. But anyway, that's all right. Right. Is she locked in for five years? Well, you just told everyone to wait until November 1st. So, I guess she is. Is that your answer? I guess she is locked in. Wait a minute, wait a minute. I didn't say that was not too late because we're running late on this podcast. All right, Amy, KT and everybody else. This is what you need to understand in I bond series II bon reset its interest rate Every November 1st and May 1st for every six months. But that interest rate is only locked in for six months. So, you're 3.54%, which is nothing to sneeze at my love is locked in for six months. But on May 1st of next year, party time, it will change to 7.12%. So, if you had waited till November one, you would have gotten the 7.12% for these next six months. But all right. It's not that big of a deal. You just wait until May 1st and you'll see you get the higher interest rate. So, everybody remember, on series I bonds which are inflation bonds and are the topic of Sunday's Suze school. It is very important that you understand that the interest rate is not locked in for five years. What's locked in, is that during the first year you cannot touch this money no matter what. From year 2-5, you can withdraw it, but you will be penalized a three-month interest penalty. That's all. After five years you can take out any money you want, but you will pay income tax on it on the federal level, but not the state. So, don't be sad, my dear Amy, you did just fine. No big deal. But it's really important that you listen to Sunday’s podcast again, because I'll give you an advice on when did it make sense that you should have purchased before the November and the May 1st dates. And when does it not make sense to purchase before that time? Alright. We've gone a little long. We've gone long. But you also have to listen to something else on Sunday what that we're going to tell all of you the names and hopefully where they're from, of the winners of the Alliant Credit Union sweepstakes. Very exciting, exciting. So, take a listen and then you'll know who won. All right, everybody. All right. So, until Sunday, there's really only one thing that we want for all of you, and that is for you to remain what KT? Remain safe, remain strong and most of all remain secure. See you then. Bye, bye.

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