Podcast Episode - Ask KT & Suze Anything: How Should I Prioritize My Spending Buckets?

For this episode of Ask KT and Suze Anything, Suze answers questions about 401ks, Roths, elder care, when to start a 529 plan and so much more. 

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Podcast Transcript:

Suze: February 22nd, 2024. Welcome everybody to the Women and Money podcast

KT: And everyone smart enough to listen.

Suze: This is the KT and Suze ask us anything edition.

KT: It sure is our favorite Thursday podcast.

Suze: So, KT, what have I always said to you were the six greatest words in life?

KT: Oh, that's easy. I admit that I was wrong.

Suze: So everybody, I'm going to be using those words with you right now on last Sunday's podcast. There were two things that I was wrong about. So you might want to go back and listen to that podcast because I've updated it with all the correct information. And the two things are this: number one, a spouse's retirement account, an individual retirement account for a spouse does not count towards your pro rata rule when it comes to a backdoor Roth IRA. That's number one, number two, the actual formula to figure out how much taxes you will owe on the pro rata rule is calculated a little bit differently. So just go back to that podcast last Sunday and you will hear everything and now it is 100% correct.  Alright KT.

KT: How's that feel, Suze?

Suze: Feels much better.

KT: No. Wait, how does that feel? I never get it right. When it comes to that Roth. Now, you, now you sound like a KT

Suze: Do it. KT come on, do it, (KT makes the wrong answer noise) KT. We can do it together, right? (They both make the wrong answer noise).

Suze: Alright. So before we begin, everybody, after I've just been, (makes the wrong answer noise again.)

Suze: If you do have a question and you want it to possibly be chosen to be answered on the podcast, simply write to ask Suze Suze podcast at gmail.com. And if KT chooses it, we will answer it on this podcast. All right, my dear, what he got for us.

KT: Ok. Well, I'm going to address what you just said you were wrong about that. You fixed. All right, Katherine wrote. Hi, Suze. Thank you so much for your Susie school on backdoor Roth confusion,

Suze: Which I confused you more about.

KT: It was very helpful. My husband and I do not qualify for a traditional Roth anymore because our income is too high. We do participate in our employer, Roth though. We are both in our early fifties.

KT: We would like to maximize our Roth retirement savings and we've been looking into the back door Roth. My question is that my husband has a small traditional IRA that was a rollover from a previous employer more than 20 years ago. If he rolls it into his current employer, traditional 401k, could we then avoid the pro rata rule?

Suze: Yes, that's always, and that I've always been very clear on. Yes. If your company that you work for allows it, you absolutely can take the money that you did a roll over with. It's in an IRA right now and roll it back into your new company or your current company, 401k. All right. Next KT.

KT: Ok. So Suze, next question is from Diane. She said, hi, Suze. Thank you so much for your Sunday, Suze schools.

KT: I have a backdoor Roth. My husband has a traditional IRA, but I do not. My understanding is that my husband's IRA does not affect my backdoor Roth conversions whatsoever.

Suze: And that is correct. And so you have it 100% again, a spouse's individual retirement account, no matter what kind they have does not affect your individual retirement account moves, especially if it is a backdoor Roth. All right, KT.

KT: One more Roth question. And I'm going to go to a different topic.

Suze: That's good. I'm now going to join the KT camp. Roth, what does that mean? How does that work? I'm not sure.

KT: I'm glad I didn't answer any of these. All right. Hi, Suze and KT. I wish you had first time question submitter here. Congratulations Emily. You have courage to submit a Roth question. I don't, I am 49 with a July birthday. I'm excited about turning 50 this year as I can contribute more to my Roth IRA. Since the contribution max for under age 50 is 7000 in 2024. Would I have to wait until 2025 to contribute the amount for over 50?

Suze: And the answer is no.

KT: Wait, wait, wait, wait. She's gonna turn 50 in July.

Suze: So no girlfriend, because as long as you're gonna turn 50 anytime this year, right? You can make an $8000 contribution. Remember when it comes to an IRA of any kind, truthfully, you have the ability to open up a 2024 IRA or Roth IRA all the way till April 15th of 2025. So yes, contribute it now and you'll be absolutely fine.

KT: So next question isn't really a question, Suze, it's a comment and it's one that I think all of us should listen to and, and ponder it's from Janine. She said, Suze, your advice people first then money, then things is golden. I have heard you talk several times about helping aging parents and keeping them at home. After the passing of my father, my brother and I cared for our mother in her home for several years until she was close to 90. We were blessed that she was in good health and mobile, but she was lonely. She didn't want to go to a senior citizen center even though we offered, she joined some church group. But she was still lonely, seeking friendship and companionship from people closer to her own age. She wanted to live in a community with other people in her age and stage of life.

KT: She would come to our home to visit but was eager to get back to her own place. So all of this is to say, when you talk about caring for elderly parents, don't forget that they have socialization needs that children cannot often meet. So while it's good to encourage your listeners to value the precious time they have with their parents, please also consider these other aspects. She also explained that as the mom was aging, she and her brother couldn't physically give her the right care.

Suze: But here's what confuses me, confuses both of us. I would imagine both of us had to take our mothers and put them in a, in an assisted living, when it came to that when it came time. So, Janine, I hope I've never given the impression that we all have to take our parents in and that's the best way to take care of them.

Suze: And I've never meant to do that if I did because both KT and I understand very well what you're talking about and both of us had our parents for years in assisted living facilities. What I really mean is that whether they're at home with you or at home in an assisted living facility or an independent living facility or wherever they may happen to be all of us need to make it a priority to go and visit them wherever they are living to go and spend time with them wherever they happen to be because that time is precious and priceless. All right,

Suze: I hope Janine, you feel better now. Ok.

KT: Next one is from Kathy: Comments, Hello. My question is about paying and saving for my daughter's college education. She will be attending college in the fall of 2027. I'm not sure if a 529 plan will even be worth opening since college is a mere three years away. But that's, that's a great question. The reason I picked it, Suze, every question I get on a 529 plan is when a baby's born and now her daughter is three years away. So, is it good?

Suze: Kathy. You chose it, KT because that was your name Kathy. Right?

KT: Maybe. It's a good question.

Suze: Maybe... you never know why KT chooses it. Here's what you need to understand. She's not just three years from college, she's seven years till she is through with college. That is a long time. So, in my opinion, a 529 plan absolutely is still something that you should consider and do if you can afford it. Because even though she's just three years from beginning, you have four years, four more years of possible growth, good growth for that money, good tax free growth for that money for your daughter to be able to utilize. All right, girlfriend. Wait, wait, before we go on. Right. That one about turning 50 she was gonna turn 50 in July. Right. It reminded me of you.

KT: Yeah, my birthday is July

Suze: And when we both turned 50, really - That's when KT and I came together as one. So I like that. I don't know. I just thought of that.

KT: What a great year that was for both of us. Ok. Next questions from Michael said, hi, Suze. I'm in my mid thirties and I'm struggling to understand if it's better to keep contributing to my traditional 401k given the compounding interest or if I am too late to do a Roth, any clarity would be deeply appreciated.

Suze: So Michael, here's the thing, what confuses me is why you think your money will compound in a traditional IRA and not in a Roth IRA unless you're talking about the traditional IRA giving you a tax write off and the tax money that you're saving is compounding and either way you're figuring it. I am telling you at the age of 30 in my opinion, you should be doing a Roth retirement account of any kind. A few Suze schools back. And I think it was a Suze School. I gave the example of how money can compound in a Roth IRA over time  and how you would have possibly millions of dollars, especially if you're starting at 30 my dear, that you'll be able to access absolutely tax free. And the chances of you taking the actual savings from your deduction of a traditional IRA or 401k and investing it and doing things like that is nil people usually just spend it and it goes right down the, "I wanna do this river."

Suze: So do a Roth and trust me, 40 years from now, you will be so happy that you did. All right, KT.

KT: Suze. I have a couple of questions that came in about HSA. I guess this was a, um, a thought from one of your Suze schools and this is from Katie. She said, hi, Suze and KT, a friend of my husband recommended using non HSA money for medical expenses. He thought there was benefit to saving the HSA money for later down the road. Could you please speak to this.

Suze: For everybody who doesn't know, an HSA is a health savings account and it comes with a high deductible health insurance policy.

Suze: And within the HSA, that's where your money goes, you fund it every year and when you have a health expense, you get to use that money, that number one you got a tax write off for. When you put it in there, you get to use that money tax free for a qualified medical expense.

Suze: If you don't need that money in there, you then have the ability. Usually once you have at least $1000 in the HSA to actually invest it. And if you invest it over the years, it can grow to a really nice sum of money. When you're older, you can use that money at that time. For medical expenses that are qualified, you can even use it for long term care in some cases. So if you have the money to be able to save it  and let it grow and still just pay for your expenses right now with after tax money. Go ahead and do so. Your husband's friend is correct. Not many people have that luxury because it can be a lot of money and expense today. But if you have that ability do so, remember once you reach 65 if you go to take any money out, that isn't a qualified medical expense, you will pay ordinary income tax on that money.

Suze: So the HSA, one more time is the only double tax free retirement account out there. You get a tax write off when you put the money in and it's tax free coming out when you use it for a qualified medical expense. There is no other retirement account that does that.

Suze: Why do you look like that?

KT: Well, an HSA - I always think of only a health savings account, but you're, you're calling it a good retirement account.

Suze: Well, I'll tell you why, KT, what is our biggest expense right now in retirement?

KT: Medical always.

Suze: What if you have the ability to take money from an account while we're in retirement to pay for those medical bills. The deductibles, all those things tax free. Wouldn't that be a really wise way to use the money that's in a health savings account?

KT: Sounds good to me.

Suze: And aren't we spending more money on medical bills now that we're in our seventies than we did in our fifties in our forties and our thirties?

KT: Always, we always get older. He ain't gonna get younger.

Suze: So officially, it's not a retirement account, but given your biggest bills in retirement happen to be medical bills. It's not a bad idea if you have the money to pay for those medical bills, not from your HSA but from your own money while you're younger and let that money stay within the HSA, growing tax free. If it's used for a medical expense that's qualified when you are older, that's how many people use it.

KT: Next question is from Liz. Hi Suze and KT does it make much of a difference to work on increasing a credit score once it's reached 800?

KT: Wait, this makes me laugh because Liz, you already have like a great credit score but why wouldn't you want to just keep it? So of course you want to keep working on it, right? (Suze makes the wrong answer noise) Ok. So does it make a difference to it?

Suze: No it does not. When it comes to a FICO score, they have certain areas, certain sectors and anything from 800 truthfully all the way up to 850 which is the highest you're going to get the exact same interest rate. So it really doesn't matter. If you simply want to do it because it's a game that you want to play with yourself. Ok. But really, I want Fred about it as long as your FICO score is above 800.

KT: Ok. My last question is from Diana. Hi, KT and Suze. So grateful for your podcast and listen often, but don't think this question has come up. Ok. Let's see, Diana,

KT: I have an IRA with my trust as the beneficiary. My three kids are beneficiaries of that trust. Does that mean there is $750,000 insurance on that Ira?

Suze: Not necessarily girlfriend, because normally when you have an IRA, a lot of times you have that money invested in mutual funds, exchange traded funds and things like that. All right.

Suze: And so the insurance that you're talking about $750,000 of insurance is usually considered FDIC insurance for certificates of deposits at banks or NCUA which are certificates of deposits at credit union or anything that you have invested there in a bank or a credit union.

Suze: If however, you have money within an IRA invested in stocks, mutual funds, um, corporate bonds, whatever it may be, then that $750,000 does not apply. However, if the trust is the beneficiary of a CD or whatever it may be depending on the numbers of beneficiaries that you have.

Suze: Then, absoutely, each one has a $250,000 limit. There you go.

KT: I said that was last. But I just want to do this one from Dee because it's about New Jersey where I'm from. Ready for this one.

Suze: There you go. That's a new reason.

KT: No, no, no. Listen, it's a short one, but it's important, Suze. I bought a home last year in in a New Jersey suburb at $125,000 over the asking price.

Suze: And she did that a year ago?

KT: And yeah, last year, hold on... due to high demand and market values. I'm concerned I may not get my money back when I'm ready to sell in about 5 to 8 years.

KT: So this is a good question. What's the best way to mitigate this potential loss? Given the high selling cost?

Suze: What makes you think that you are going to have a loss, especially 5 to 8 years from now? All right. So ask yourself this question, Dee, why did you buy the home when you bought it?

Suze: A home isn't necessarily an investment. A home happens to be where you live, where you love to live, where you feel secure, where you feel safe. You don't even know in five or eight years if you're even gonna sell it or not. But I don't think you're going to see homes depreciate in value.

Suze: So I have a feeling you don't have to worry about a potential loss because I just don't think it's going to happen in this situation.

Suze: All right, KT, you ready? Tell everybody what quizzy time is all about.

KT: Quizzy time is when Suze asks KT and everyone listening a question.

Suze: And why do we do that, KT?

KT: So that we can all learn more?

Suze: Yeah, I think it's really important, everybody, that, you know the correct answers to questions, you know, when something is wrong and then you correct it. It's, that's very important even when you correct me. Fine. No problem. But you have to know when something's wrong because we all make mistakes. So this is all of us being given a chance to answer questions correctly.

Suze: Hi, KT and Suze. This is from Ellen. I'm a longtime fan and faithful podcast listener. I am 67 and retired for about two years. Luckily, my social security covers most of my daily living expenses. The only time I need to draw from my savings is for extras, like travel or unusual expenses.

Suze: I have all my money in several buckets. Regular savings accounts. A traditional IRA, a rollover IRA and Roth Ira accounts. Here's your quizzy KT.

Suze: My question is which bucket do I draw from? 1st, 2nd, et cetera.

Suze: Do you understand the question?

KT: I think the easiest one to withdraw from without any penalties or dings or concern.

Suze: She's 67 so penalties do not matter ok.

KT: Regular savings would be the first one I would take money out of if I need it. Like, if I wanna go on a travel, you know, I wanna go see my kids or something, regular savings would be one and then the second choice probably would be the Roth.

Suze: Final answer?

KT: Yeah.

KT: (Suze makes the wrong answer noise) Ok. All right. Everybody see the goal of the quiz is to get the ding, ding ding, which is very rare in, in my neighborhood.

Suze: So Ellen here is why I went (Suze makes the wrong answer noise) to KT, which is: you are lucky enough to be living simply on your social security. All your other buckets except for your regular savings, which may not have a lot of money in it at all. Are your traditional IRA, your rollover IRA and your Roth IRA accounts, your Roth IRAs are growing tax free. So you should allow them to grow tax free for as long as you possibly can and do not touch them.

Suze: You are not making that much money. Seems to me the only income that you really have is from your social security and given that you don't really have any income from anywhere else, your social security is tax free to you as well.

Suze: So given that you're not really in a very high income tax bracket, if at all, why not take the money out of the traditional IRA or the rollover IRA that is taxable to you, because you could take out again if you're single. If you're not married, you could take out 15,000 a year or whatever it may be. Take the standard deduction off your taxes and guess what? You're not going to owe any taxes on that at all. So, the answer to this question would be your choice: Traditional IRA, rollover IRA, then the Roth IRAs and the last, your savings accounts because it's so easy to get at. That's how you would do it. All right, KT, what do you want to say to everybody?

KT: I would have never got that right. I think to go for the easy one first.

Suze: That's true, KT, you go for the easy one first. That's how you got me because I was easy. I was like KT KT, pick me, pick me! All right. Guess what? We're only a few, like two weeks away from going to Abu Dhabi. How does that make you feel?

KT: Pretty excited? Yeah, I can't wait.

Suze: All right. I'm a little nervous everybody. That's why I always say it, but it's ok. We're going for it anyway. Until next time. There's only one thing that we really want you to remember when it comes to your money. And what is it KT?

KT: People first, then money, then things

Suze: And if you do that and stay safe, we promise you you will be unstoppable.