March 20, 2022
Listen to Podcast Episode:
On this special Sunday podcast of Ask KT & Suze Anything, Suze answers questions from listeners about making changes to your will and trust, is gifting a Roth possible, and so much more!
Podcast Transcript:March 20, 2022. And welcome to Ask Suze & KT Anything, now we know we know that you think today’s supposed to be Suze's School. But we've decided nothing is supposed to be anything other than what we want to do. And given that Thursday, which was supposed to be you and me, KT, I did a Suze School. Today we're going to do us. Okay then, KT, you have questions for me. Yes. And the first one is gonna I think pull at your heart strings. You ready to have a heart? You do. You have a big heart Suze. And it's this is from Krista. And I picked this one specifically for you. I said hi Suze, I've been working on getting out of debt since the pandemic. I am having some success, but I feel like I'm stuck at my job. I am 46 and have worked at the same place for 17 years. I am a waitress. There you go. Suze. I make $2.83 an hour plus tips. I want to ask for a raise because I need to make more money to keep up with inflation. Is it unreasonable to ask? How do I do it, Suze? I am desperate and I need change, and this is from your Krista. Krista. Let me see that KT for a second here. So okay. KT you wrote a note on it. KT wrote, you're writing notes and emails now and the note that KT wrote was stand in your truth. Mm hmm, meaning half the courage. Krista listen to Suze and just do it, don't be afraid. Just ask. Here's the thing Krista is that especially today where so many employers are really, really looking for employees, they can't find good people or people at all to fill their jobs. You are a valuable commodity more today then you've really ever been believing it or not. Number one but number two. And this goes for everybody. You cannot ask for something that you want or need from a place of fair or a place of powerlessness. Remember power attracts money. Powerlessness repels it. So, there is nothing wrong sweetheart with you going to ask for a raise. But you have to do it from a place of strength, and you have to do it from a place of where you don't ask a question that you could get the answer of yes or no. So, what do I mean by that? Don't go to your boss and say can I have a raise of 10%? For instance, that's a yes or no question. If he or she says no to you, what are you going to do? Go to your boss and say I have worked here for 17 years. You've seen what a valuable asset I am and now I am asking you for a 10 or 20% hourly raise. Which one do you want to give me? That is not a yes or no question. That's an either or make sure the amount of money you want is the lowest amount you asked for. So, if all you want is a 10% raise, then ask for 10 or 20%. If you want a 20% raise, then say I want a 20 or 30% raise and watch what happens. But do it from a place of strength. Do it from a place of where you know you deserve it and go for it. And if your boss says no, then it's time for you to think about looking around and seeing what else is out there for you. Suze. There's another option here. Krista said I need change. She actually said I'm desperate and I need change. That means maybe after 17 years it's time to change. Have you looked into it? Are you afraid to consider other employment? Yeah, that's it's true. If you need change. Is it the change of a place or do you just need change because of money? Money usually isn't the only reason you need a change. So KT is right there, Krista, you might want to look around as well and 17 years. That's a long time to be somewhere you need to ask yourself the question, did you stay for 17 years because you loved it or did you stay 17 years because you're afraid to leave. How would you answer that question? My dear Krista. Right, KT, what else do you have for us? Okay, next one which I really like. Hi KT and Suze. KT, you like them all. But This one is important. They're all important. This one, everyone must have You get it ready. Thank you for all you do for us. I purchased Suze's Must Have Documents and I've used them for my 83-year-old mother. It was quite easy to do and we are both very thankful to have done that. I wait before you go on just for those of you who don't know what they Must Have Documents are they are documents, legal documents that you must have and they are comprised of and every single one of you must have these, they will, a living revocable trust, in advanced directive and durable power of attorney for health care, and a financial power of attorney for finances. So, every single one of you needs those. But those are really expensive. When you go to a lawyer, you know, most lawyers are going to charge you $2,500, whatever it may be for those documents. And a long time ago, over 20 years ago, my personal lawyer and I decided that people can't afford that everybody needs those documents and we figured out a way to computerize them, individualize them and make them available to all of you for a really reasonable amount. Recently. We had to go up to $99. They used to be $69 but hey, $99 for $2,500 worth of state-of-the-art documents worth it. Especially since you can share it with anybody in your family. Go to SuzeOrman.com/offer and that is where you would get them. All right. KT, wait, I have to tell everyone a little side note. So, Suze was in the hospital as you know for this surgery a few weeks ago and the first thing the admission nurse asked me was do I have a directive for health care, And I looked at her. I said you've got to be kidding. They all had a chuckle. They were actually teasing me. Okay, so here we go. I am a widow and had a revocable trust created with a lawyer for myself. After I saw what I had to go through with my husband's passing my documents need updating. As my daughter had a name change and I have some new accounts. Can I create updated documents with the software and use the existing trust name? I would prefer not to have to contact all of the institutions again and re title my house. So, this is a great question because a lot of people ask this, can I do this. Suze with your program and then get them notarized to make them official. Would that be appropriate? You betcha you can, you all should know that once you create a living revocable trust that trust has a name like mine is Suze Orman trustee for the Suze Orman living revocable Trust dated? The very first time I created that trust. That name sticks with my trust for as long as I live regardless of how many changes you make, which are a lot in my particular situation. So yes, you can absolutely do that. I just want to say one thing you say that your daughter had a name change and you say that you have some new accounts that doesn't necessarily mean that you have to change your trust and do a new one. You could just put the name of your old trust onto your new accounts and everything would be fine just so you know, but if you want to update everything and do that, yes. Use our program and absolutely no problem whatsoever. As long as you get it. Notarized. Yeah. The new one. Has it notarized? Right. Suse. And make sure that your new accounts, you changed the title from individual name into the title of the trust. Okay, Next is from Mary Hi KT and Suze, my son is turning 18 next week. You need a haircut. Yes, look at yourself. No, it's all right. It's sorry I didn't mean to interrupt you. Go on. So, this next question is from Mary, Hi KT and Suze, my son is turning 18 next week. I want to give him a head start by opening a Roth IRA for him and gifting the first contribution he's still in high school. But I've taught him about compounding interest and how important it is to start investing at a young age. What do you recommend for an investment, a target date fund and ETF? Thank you. And I love listening to you two every week. Hope you're feeling better Suze. So, tell Mary what to do, what do you think I should tell Mary to do hair KT? Well she can open the Roth for him, but it's got to be with his earned income. So, here's the thing Mary, good KT by the way. So, here's the thing Mary anybody can have a Roth IRA even a minor, as long as they have earned income. So, you're son has got to have earned at least the amount of money that you put in for him. Now the maximum for under 50 this year is 6,000 if you're 50 or older, which obviously he is not, it's 7,000 a year. So, if all he earned this year was $3,000. The maximum that you can put in is 3,000. If he earned 15,000, the maximum that he can put in is 6,000. Now he doesn't have to put his own money into the Roth. You can fund it for him. As long as he has earned income. If he doesn't have earned income, you cannot fund that Roth IRA for him, no matter what. So, let's say that Mary's son cuts grass every Saturday and he's earned $1,000 for the year and she opens the Roth for him and puts in $5,000. Can't do that. That's what I that's what I just told you. So, it's 6,000 or 7,000 dependents or 100% of your earned income whichever one is less. So that's what you have to do Mary now in terms of a target date fund or an ETF. Here's what I would suggest: He's going to be 18 which means he can do it in his individual name. Let him decide and learn what to invest in. The best thing that could ever happen to him is for him to make mistakes now for him to lose money now because otherwise they get very arrogant and they think oh I bought game stock and it went up to $400. Look how much money I made, and they keep thinking things like that and then all of a sudden, they bet the bank on it and they lose everything later on in life. So, I think he should be listening to the podcast on diversification ideas that I've had. Maybe he should watch CNBC things like that and let him decide how to invest the money. Just so you know my dear Mary I would not do a target date, ETF, or mutual fund. Alright. All right. Next question is from Deb I have a question on employee retirement. Traditional IRA accounts I'm 57 years old and I've been contributing to my employer's 401K, Traditional IRA and I've been contributing for 15 years. You should see her face when I said stop. She just froze and her eyes got so big and she looked at me like what did I do wrong? What do you mean KT? There's a contradiction in terms there, what is it? This is your quizzie. There's no such thing as an employer IRA. My employer's 401K. Traditional IRA there's no such thing. There's a 401K. There's a traditional 401K. But employers cannot offer you an IRA, everybody because an IRA stands for what KT? Individual Retirement Account. Right so she has it wrong, but I just wanted to point that out to everybody. So, it didn't confuse people. So, she's talking about a traditional 401K with her employer not an IRA. Okay so Mary, here's the question that you should be asking. You go on read it like it should be. I'm 57 years old and I've been contributing to my employer's 401K. And have been contributing for 15 years last year I decided to contribute to my employers 401K Roth but I kept the 15-year contribution in the 401K Traditional because I was concerned with dwindling the money I had built up. See that people still don't get it. Suze, my question to your is should I convert my 401K. Traditional to the Roth account now or wait for later and if I wait, when should I convert it? So, Suze we need to set Deb straight the fact that she is concerned that she's gonna dwindle the money. She built up in the traditional because of a conversion. Can you help her understand that? I can help anybody KT. So, Deb here's the thing now might not be such a bad time to convert if you were going to convert because when you convert from a traditional 401K or a traditional IRA to a Roth 401K or a Roth IRA you pay taxes on any amount that you convert and normally that money is invested in the stock market. So, if the stock market is currently down there actually isn't as much money in that 401K. As there was maybe a year ago So you would pay less taxes right now because very possibly that account is down 10 or 20%. So if you were going to convert now is a great time to do so but you need to check with your accountant to make sure that that doesn't put you what in a higher tax bracket it doesn't disqualify you maybe for student loan packages for your kids or child tax credits, all those things. So just check with an accountant before you do it. But if you were going to do it now is probably a good time to do so, while the markets are still down now, this thing about dwindling it, I have no idea what you mean by that, but you are 57 years of age. So, the question becomes, when are you going to retire and when are you going to start taking money out of your traditional 401K to live on? Because if you're going to retire in two or three years then it makes no sense to convert. So you want to know that the money that you convert that you owe taxes on it gets to stay in there long enough for you to make up for the taxes that you are going to pay on it. Otherwise just leave it like it is okay. Okay. Suze. The next question I have is from Kathleen in New Jersey. Kathleen. I picked this because I'm from New Jersey as well. So here you go, Kathleen and her husband had nothing to do with the question you picked it just because she was from New Jersey. Do you understand everybody what I live with? Do you understand this anyway? Because she's a Jersey girl like me. So, we're going to help her and by the way, you're a smart Jersey girl, they're doing great. She and her husband are in their mid-30 Suze, they are doing everything right. She sent me a big long list of all that they have been doing, which is perfect. So, the question is, what is the first step in planning for our future? We're both in our mid-thirties, we are in decent financial shape, They're in very good financial shape, but sometimes the number of different directions we can go in fields paralyzing and she said there's like 10 forks in the road so they don't know what to do first. And the question is, should we be maxing out our 401K’s and my Roth IRA every year before investing in the stock market then we know the answer to that. Should I open an IIA for my husband, I think she means a Roth and should we open an index fund with the money in our savings account then here's the glitch er This is why she needs, you should we combine our 401K’s, You can't combine them right, Suze, you Can't combine retirement accounts or you can't combine your 401K’s because you work for different companies I assume. And even if you work for the same company, therefore it's an employer sponsored retirement account so they can't be combined. So here is the way that investment should be handled for everybody. The very first thing you want to do is you want to make sure that you are out of credit card debt you don't have debts, car loan, debts, any of those things next you want to do what you want to do at least a 12 month emergency fund. And that's why we brought on Alliant Credit Union for all of you to have a really great opportunity to have a fabulous place to save money. They should all go check it out, tell her where to go, MyAlliant.com. Okay after that you should be all investing in your employer sponsored 401K or 403B or TSP. Whatever they offer especially if they match the contribution within an employer sponsored plan. If they offer a Roth, you should be doing the Roth 401K, the Roth whatever it may be TSP, 403B. Once you've done that and you qualify for it you should also have a Roth IRA. Now the traditional the whatever I like Roth retirement accounts as KT will tell you as you all know her very favorite topic more than anything else. Also, what I didn't like Kathleen about your email as you say, should I open an IRA for my husband? What does that mean? Does that mean that your husband is letting you do absolutely everything and that he has no say in this and he's not doing things and he just says oh you take care of it now, why you may think that's a great thing I don't and the reason that I don't is if something happens to you and you love this guy, he's not going to be able to know what to do on any level. He's not going to know why you did that, where you did that. So, you need to sit down with him and go through it little by little, you're already investing in the stock market within your retirement accounts. So, you're saying should you be maxing out your 401K’s in your Roth every year before investing in the stock market, you're already investing in the stock market. So maybe you're asking me, should you do that before you open up an investment account where you invest in the stock market outside of retirement accounts. And the answer to that is absolutely, you should. Again, you're still young. So, chances are you're not going to be in this house that you bought forever. So, at 30, I would not be paying down the mortgage on your home. Just so you know, that's essentially what you do. Just make sure you have at least a 12-month emergency fund, make sure that you are out of debt, make sure you are maximizing and maxing out your retirement accounts where you work and Roth retirement accounts. If you can have them. Um and again they should be Roth at work and that those are the things that you're doing, make sure you have the Must Have Documents make sure that once you do have a child That you start a 529 plan for him or her right away. So those are a few things that you should do, consolidate things. Make sure you're all in one place. But these are things that are not that difficult and you're not that lost because why you're from New Jersey? Jersey girl. Okay, my last question, Suze is from Linda. Hi KT and Suze. My millennial daughter is 29 finishing her PhD and always pays her bills on time. She does have student debt but hopes to finish her degree this year. She wants to get a job and hopefully buy a home. She's feeling a bit hopeless about the future for young people. Though. I can't say I blame her. She has worked hard to build a good credit score and recently paid off her car loan. She discovered several months later that her credit score had dropped 50 points. Why are people penalized for doing financially prudent things like closing credit card accounts you don't use? Right Suze. There you go. And paying off loans, blah blah blah. It says it seems like a penalty is assessed if you aren't taking on more debt. So, there you go, Suze, let's tell Linda why that went down 50 points. So, first of all Linda, you cannot let your daughter have the attitude that she's depressed as to what's happening out there for millennials and things like that, there's always hope. It's not hopeless for the future of young people. The truth of the matter. The future for young people is great if the young person takes their future especially their financial future in their own hands. Because when they are smart with money, when they are diligent with money, when they start saving money and getting out of credit card debt and investing money when they are young, Oh my God she's 29 years of age. These are her compounding years. So, don't say yeah, I kind of get it. I can't blame her. She feels hopeless. Do not let your daughter feel hopeless. That is the most poverty-stricken mentality anybody can have, and your daughter is smart. She's finishing her PhD what are you talking about? And it depresses is her Because her credit score went down 50 points. She's not being penalized. It depends what's happening really at the time that she checks her credit score. Did she charge a lot that month? And did it happen to go down because her debt to credit limit ratio which makes up about 30% of your credit score went up. Whatever it may be. The reason Linda when you shut down credit cards, your FICO score or your credit score goes down is because like I just said a second ago, 30% of your score is made up of your debt to credit limit ratio. So, let's say you have five credit cards open or a car loan or any other type of loan and each one of those things gives you a credit limit. So, you have five credit cards that has a $2,000 credit limit on each. So that happens to be a $10,000 credit limit. Now let's say that during the years your daughter went to school, she maxed out all five credit cards. So, she has a $10,000 debt to a $10,000 credit limit. That's 100% debt to credit limit ratio. And the most they want to see is a 30% debt to credit limit ratio. So, they would want to see for a great FICO score No more than $3,000 of a $10,000 credit limit being used. She's being great and she pays off one credit card and she shuts it down now she pays off another credit card and she shuts it down and she does that with every credit card except for one. Now she still owes $2,000 on that credit card has a $2,000 limit. But because she shut down the other credit cards, she still has 100% debt to credit limit ratio. If she had paid down the debt on those four other credit cards and left them open, she would have a $2,000 debt to a $10,000 credit limit which is 20% debt to credit limit ratio. And her credit score or FICO score would have gone up. That is why it goes down when you in fact do what closed down or pay off some debt now with that said 50 points here and there doesn't necessarily make a difference. So, it's really important that you need to know as well as your daughter that there are ranges. So, for instance, the best FICO score you can have been 850. However, you're going to get the same interest rate because the range is 781-850. So even if she had an 850 FICO score and it dropped 50 points, she's still in the highest range. So, it hasn't affected her interest rates on any level. So just so you know the FICO score ranges go from 300 to 499 which is the worst you could possibly have. Then they go from 500 to 600 which is really poor. A fair FICO score is from 601 to 660. A Good Fico score is 661 - 780. And then an excellent FICO score is 781 to 850. So anywhere within those ranges, you are great. So, if she happened to go from, let's just say 780 to 730 she's still fabulous. So just know the ranges. All right. Anyway. Yes, KT Suze, you have to tell everyone when I first met Suze, I said remember those days, that was like over 20 years ago And I said Suze, let's check my FICO score. And that's when she was developing all of this. And I was so disappointed when I learned that I was not a perfect 850 and KT and I don't have really, we don't have, we have good, we have excellent excellence. But we don't have perfect because we have no debt. We don't have we don't carry any loans. None of that. So, who cares about it? Just be in 781-850 and you will be fine. All right. Is it time because it's Sunday quizzie? Sunday, Now KT, I have to quizzie. I want you to pick which one you want me to ask. You don't look at him. Just pick one the short one, the short quizzie. There's two quizzies, ones, long ones short the short one. This one is from Summit. All right. Now everybody quizzie time is very simple. This is where I ask all of you a question rather than you is asking me. I ask all of you. KT represents all of you. So, don't feel bad if you get it wrong because KT gets it wrong a lot. A lot. Right. And so, you can identify with that. So, but this is to see how much you have learned over the years now that you've been listening to the Women & Money Podcast, Summit. I guess it would be Summit. I'm sorry Summit at Summit says, I asked my broker to convert a few shares for my traditional IRA to a Roth IRA. But the broker converted the entire account. After I found the mistake, the broker is telling me that once it is converted, it is not possible to take any corrective action. Is this correct? I am unable to reach the IRS for the last two days. I think that is correct. And I think it was a great mistake. He went from a traditional to a Roth wait, wait, I did not ask you, we love you know KT, do you see, do you see what I mean? Everybody, everybody. The question is it possible to correct the mistake whether it was a great move or not because you don't know how much money he had in there, maybe he had half a million dollars in there and now he's gonna owe income tax on half a million. And all he wanted to do was convert a small amount of maybe shares that were already down KT. But instead the broker converted the entire account. It's a mistake. He did not want that to happen because he owes taxes on that money. Now the question to you is can that mistake be corrected? Yeah, I'd make the broker be liable for my taxes. No, no, no, no I no, I'm only kidding, but I think that if he does contact the IRS and explains the situation then maybe they can fix it. Yeah. I haven't laughed in three weeks. Oh right. Is that what you would do? So, all of a sudden you have all this money and you would expect the IRS to fix it when you're going to owe them all that money. Yeah, I'd say I don't have that money. He made a mistake. Everyone can you fix it? So, I said first I don't think you can correct it but then you changed that because you made it sound like it's being wrong. No, I said I don't think you can correct it. However, there is something he could do tell the IRS a mistake was made and then they put him on a tax payment program. There you go. If you don't have the money to meet but he didn't say he didn't have the money. Well he wants to fix it; he wants to go back in time to me and everybody else. How did all of you answer that question, can it be fixed? Can the broker change it back? Right or not? The broker cannot change it back. But here's why KT, years ago you used to be able to convert from a traditional IRA to a Roth and then if you wanted to because maybe from the time you converted to where it is right now the markets went down dramatically because you owe taxes on the amount of the account when you convert it? So, if you convert and it's at $100,000, you're going to owe taxes that year on 100,000 by the end of the year. If the markets went down and that account is worth 50,000. What a shame that you would have to pay taxes on 100. So, they used to allow you to do something called re characterize the Roth back to a traditional, so you didn't have to pay taxes, which is what Summit is asking to be done. Is that still relevant today? No, because with the tax cut and jobs act of 2017, they made it a law that after January 1, 2018 if you convert, you can no longer re characterize. So, by law, you cannot correct this mistake. However, I would think twice about the broker that you were using and I would really be talking to the manager about what this is going to cost you in taxes given that it's something that you did not want to do and brokers should forfeit their commission right there. Commission isn't going to be anywhere near the amount of money still forfeit that. Well, we don't know. Maybe they're not on commission at all. Right. All these things, KT keeps saying to try to solve something isn't the solution the solution is there's nothing that can be done. You cannot re characterize and change it back by law. But if I were you, I would be talking to the financial advisor’s manager. What are they going to do for you to make this right with the amount of taxes that you may owe something for you to think about? All right, KT Oh now she's sitting here everybody because in front of us is this big mirror and because earlier in the podcast I said I think she needs a haircut. Now. She's looking at herself in the mirror and deciding if that's true. Is it true? The sides aren't really very good. The tops kind of short need to try to cut it for you. Maybe I'll just let it grow. And then when we're on the island we're all going back to the island in a couple of days, we can't wait. Maybe when I'm there and the sun starts to grow it fast, I can cut it alright everybody and have a great week everybody and I have to decide if on Thursday we're going to do another Ask Suze & KT and go back on schedule. Everyone loves Suze's School on Sunday; Sunday school makes sense. Alright because there's so much I want to tell you about the markets, so we'll do another Ask KT & Suze Anything on Thursday and then next Sunday or this coming Sunday? Actually, I have a whole thing. I want to talk to you again about the markets and are we going into recession and ways for you to think about all kinds of things that I just want you to be aware of. So, until then, what do you want to say, KT stay secure, safe, strong, smart, and beautiful. All right, well, let her have the last word. See ya, Thursday. 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.
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.