Podcast Episode - Ask KT & Suze Anything: I Want to Move On

On this edition of Ask KT and Suze Anything, Suze answers questions about pensions, trusts, marriage and co-owning a home with a new partner.  Plus, a quizzy about the stock market and so much more.

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Podcast Transcript:

KT: It's October 3rd, 2024. Believe it or not. And this is the women and Money podcast. Ask Suze and KT Anything and we're gonna answer all of your questions. But before we begin, Suze has to say something really important.

Suze: Happy Rush Hashanha, Happy New Year, and again, we start a New Year for many. So let's all hope it's a great one. Now, even though this podcast is dropping on October 3rd, we have recorded this before October 3rd because currently on October 3rd, we are in Las Vegas where I am giving a talk to women of color. 3000 women and I sure hope I'm doing well, KT.

Suze: Well, you know, it's the first time that I've given a talk to that many people in a long time.

KT: So anything in Vegas is big. But what, what happens in Vegas stays in Vegas. So let's get on with this great podcast.

Suze: So, before we begin, however, KT, if you, you wanna write in a question and if KT picks it, it will be on the podcast and you never know and I'll answer you directly, send it in to ask Suze Podcast at gmail.com. Keep it short or make it unusual because KT likes...

KT: I like to read the subject area that will always catch my eye. So in the subject, if you put something, you know, kind of fun or unique or different or shocking, I usually go right to it. Ok. First questions from Gina, she said, Suze, I am 56 and recently retired with a pension. So now I want to start rolling over the 1.6 million pre tax 401k to my Roth IRA over the next 10 years, I also have 200,000 in a Roth 401k. I don't want to use the money from my liquid savings to cover the taxes. So my company's benefits person told me I could do the following steps, do an in plan rollover of funds from my 401k to my Roth 401k about $100,000. I think she said then roll over my Roth 401k into my Roth IRA. Then I can do an immediate withdrawal from my 401k for the amount that I think I will owe taxes on meaning about 40,000 and ask my company to withhold 100% of this amount if they withhold too much, I will get a tax refund otherwise I may owe a little. Suze, first of all, if you can remember this and figure it out, Gina wants to know, does this approach make sense?

KT: You should see her face. Can you remember any of that?

Suze: Here's what's funny. I read this one and I answered Gina directly. So it's fascinating that you kind of picked it out as well. First of all, with the utmost of respect to your benefits person at the place that you used to work. Are you crazy? Really? I don't know how else to say it. Let's just break this down. If you have money in a 401k, that's pre-tax.

Suze: And then you do a rollover to your Roth 401k at work. First of all, that's not a roll over. That is a conversion and you are converting from a pre tax account to an after tax account. So guess what? My dear Gina, you owe income taxes at that point in time for that year's income tax. So that's absolutely crazy. If you were asking me, I would tell you just take $100,000 out of your pre-tax 401k. Put it directly converting it into your Roth IRA and pay the taxes on it because there is no way for you to get around the taxes. But this person is having you roll over funds from a pre tax 401k to your Roth 401k, then roll it over from your Roth 401k to your Roth IRA. Like, what have you avoided there?

Suze: Are you kidding? Me. So, no, you can't do this. And also if your Roth IRA hasn't been open for five years, any money coming from a Roth 401k to a Roth IRA and that's a rollover, the account would have to be open for five years or your earnings are gonna be taxable to you. So this is the stupidest thing I've ever heard in my life to put it mildly. If you wanna do it, you're gonna have to pay taxes on it in the year that you convert. So start converting now and just pay taxes from your savings or don't do it at all. Amazing KT.

KT: I thought so too.

KT: I mean, I could not follow that one.

Suze: So that's another key. Everybody, if she can't follow what you're saying, oh, she'll pick it because she kind of likes when I get confused. All right. Go on.

KT: This one is from Ling. She said, hi, Suze. I purchased the must have documents in January of 2022. Since then. I have recently opened a Roth 401k in 24 and a Roth IRA. I'm wondering if I should put my revocable trust as the beneficiary for both the Roth IRA and the Roth 401k retirement accounts. I'm divorced and currently have my two adult daughters as the beneficiaries to both retirement accounts. Do you think it's necessary to make my trust account the beneficiary to both retirement accounts or should I just leave it as it is with my daughters?

Suze: Given that your daughters are the beneficiaries of your retirement accounts. I would just leave it that way. I would because the trust and everything can get a little bit complicated. They're no longer minors, they're adults. So you don't have to worry about that. If they were minors, I would give you a different answer. But given that they're adults, they're already the beneficiaries. If I were you, I would leave it just like they are.

KT: That's what I thought.

KT: That's what I was gonna say. Just leave it with the girls. Next question is from Sue. Good news. I found a life partner. We're both financially stable and have been transparent about our debt, assets and investments. He is 62 with a net worth of 1 to 1.5 million. I am 59 with a net worth of 2.5 to 3 million. I own a small house. It's valued at about 300,000 with less than one year of mortgage payments left. Ready? That will be our future forever or at least for foreseeable future home together. We're both working with the plan to retire three years from now. He makes about 160,000 and I earn about 120000 and...

Suze: Wait, wait, don't you find that interesting? She makes less than him, but she has almost double than he does in retirement. What does that tell you? Possibly?

KT: She's a good saver.

Suze: But what does that tell you about him? He's not that great of a saver.

KT: We don't know if he had a lot of more expenses.

KT: We don't know, give him the benefit. So we both have two adult sons where we would want to bequeath 50% of our own assets to those boys. Upon our death, we're interested in owning the house together so that we both have a vested interest in it. Both benefit from any improvements made. Both have the ability to continue to live. There should one of us pass away. What would be a fair and simple way to co-own the house? Now, wanna make this my pop quizzy, make this my pop quizzy.

Suze: Take a look at my face again.

KT: Yeah, I'm looking at the face. I know the answer. Everyone just don't do it. You don't need to co own it, you own it. Sue keep it so simple.

Suze: KT is absolutely correct here. Listen, I get that you have found your life partner, but until your life has gone all the way through its life, we don't know if you found your life partner or not. So therefore you are entering this relationship with a home that you own. You have one year from owning it outright and given that that is true.

Suze: Boy. KT, you know what, this reminds me, this reminds me of you and me.

KT: We, we've, we've heard this scenario many times we actually lived it 25 almost 25 years ago.

Suze: And tell them what we did.

KT: So, Suze meets me. We both had homes in California. Mine, San Francisco. Her on the other side of the bridge. She moves in with me and she wants to renovate.

KT: And I said, OK, let's renovate, but she was paying for everything. Quite a few million dollars. Mind you. And I said, let's put the home in both names. She said, no, it's your home. I want you to be stable. I wanna renovate it and I can, but it's your home. And she never, ever put even a piece, even a sliver or slice as they say of the title in her name.

Suze: So bottom line here.

KT: That was true love everybody. That is true love

Suze: What I would do if I were the two of you, I want you to keep this house in your name and I want you to promise me that you're gonna keep it in your name. The last thing you wanna do sue seriously is if you put it in his name as well and now you each own it and something happens, you're gonna lose half of your home, you're gonna lose it. You're in a situation now where you own it outright. If he wants to live in that home. All right, he gets the ability to live in that home, mortgage free. He doesn't have to pay for anything. You keep paying for everything in the home. He wants to pay you rent or something or contribute that way. Maintenance. All right. 

Suze: But you give him a life estate in that house, which means if you die, you put it in your kid or kid's name because I'm not clear from this if you have one or two sons, but you put it in your son's name, the life estate and he gets to live there and when he dies it goes to your son or sons. That's how you should do it. You do not want to bequeath 50% of that house to him because upon his death, then it goes to his kids and you in a strange way have disinherited your kid or kids. So therefore that's how you should do it. I would not under any circumstance at this point in time co-own that house with him.

Suze: And if he really loved you, like, I love KT, he would wanna own half of it. So don't you be like KT who wanted to give me half of the house and wanted me to do this and wanted me to have that? No, it's yours and it's what you are going to keep for the rest of your life or as long as you want to do, you hear me?

KT: So if they were married, what if they get married in five years is still her house.

Suze: It's still her house, she would do the must have documents and do what's called a separate property, trust, everything that is in her name, everything that she inherits that it's just in her name is always hers. So, prior to marriage, what hers is hers after they are married a whole another story and what hers is still hers. But any new things that they buy together, they'll split.

KT: Anyway. Congratulations on finding each other new partners. We're not being negative here. We're just being wise. We've, we've read this, we, we know this scenario. We know it can go south too. So Suze's just protecting you. Enjoy your love.

Suze: Your two Financial mama bears here. are being protective of you.

KT: Enjoy the time together. Hi, Suze and Katie. I've been living with my boyfriend in his home for the past two years. Listen to this from Dee. We've been dating for seven years. He has no interest in getting remarried again. On the other hand, I would like to.

KT: The relationship is going nowhere. I feel at this stage in my life being only 52 I need to make a move. I work a remote full time job. My yearly salary, 62,000. I have a 403 B.

Suze: How much is in it?

KT: 21,000. I have a savings.

Suze: How much is in it?

KT: 25,000. And recently I opened an IRA.

Suze: How much is in it?

KT: 1400. Besides that, she gets her ex-husband's pension of almost $2000 a month. All right.

Suze: But that probably ends when he dies.

KT: Yea, when he dies. So I have no, no credit card debt. She has a monthly car payment of $450 a month.

Suze: And how much does she still owe on the car?

KT: 15,000. So yeah, then she has monthly expenses are utilities, groceries and food for the dogs, more or less $1000 a month. She pays in expenses. Question: Suze. Can I afford to buy a home?

KT: I, I would say rent first.

Suze: You would, would you. D, that's an interesting name. D because if I was gonna give you a grade, if you could afford to buy a house, it would be a D or an F and let me tell you why, girlfriend, you may have a yearly salary of $62,000 a year. But after taxes and everything, maybe just, maybe, you know, you're at $4000 a month if you're lucky and maybe even like $3700 a month when you take out the money for your 401k and everything else. 

Suze: You cannot include the almost $2000 a month from your ex because if your ex dies, he's in a car crash or something, you cannot count on that. Your monthly expenses, you say are 1000 a month. I doubted highly in this inflationary environment for buying groceries and food for the dogs. What about vet bills, all of those things, medical, dental, gasoline, none of those things you included in there. So probably your monthly expenses are about at least 2000 or $2500 a month if you were going to be honest.

Suze: So if we look at your $3500 a month, probably, which is what you're making, take home or even if it's 4000 minus the 2500, that's $1500 a month and you still have an additional $435 a month for your car. So you don't have anything.

Suze: So therefore the bottom line is number one, you cannot afford it. Number two, you don't have the money. For what? For a down payment? You only have $25,000 in savings. That is not enough because you can't use your savings to put down as a down payment because you need not only your down payment, but you need savings, but here's the real danger sign. Here you are wanting to do something because he doesn't want to get married and there you are and you're not gonna wait anymore and you need to move on. 

Suze: So on some level, you are angry, you are angry in my opinion. So what do you wanna do? You wanna buy your own home? You wanna move on. Fear, shame and anger the three internal obstacles to wealth. If you do this, you will be making the biggest mistake of your life. Therefore, you are denied. You cannot afford to buy a home at this point in time financially as well as emotionally. Next question, KT.

KT: Ok, Suze. Next question is from Heather, you recently addressed a question concerning a one time tax free roll over from an IRA to an HSA. You advise the person to contact their HR director to understand the details. Since I do not work for an employer who offers any benefits, I have self funded an HSA through Fidelity when my health insurance policy qualified. Unfortunately, my current health care insurance provided through the state does not qualify for HSA contributions. Can I make the one time rollover from my traditional IRA to the HSA account or does it have to be an HSA account offered through an employer? Good question.

Suze: I actually answered her directly.

KT: Well, Heather good question.

Suze: But basically yes, you can make a one time rollover from your traditional IRA to your health savings account even if it's not, KT, offered through her employer. But as long as she has an HSA eligible high deductible health plan with it.

Suze: So you need those two things at the time of the rollover as well as you follow the IRS guidelines and everything like that. So yes, you can do it. But remember your contribution limit, you can only roll over up to the annual HSA contribution limit which is $3650 for an individual. So what do you think it is for a couple

KT: Three thous wait 3000, what?

Suze: 650

KT: So 14,000

Suze: Ding ding, right? And so that's how much you can roll over. So anyway, and by the way, you just have to know, you have to maintain the HTHP coverage for 12 months following the month of the roll over contribution. If you lose that coverage during this testing period, you are going to be subject to income taxes and possible penalties and remember, you can only do it once in your lifetime. All right, KT.

KT: Ok. This is from Simone. This is my last question, Suze. My mom passed away August 30th. Sorry about that Simone.

Suze: She all of you. She gets so sad.

KT: I do. She was only 78.

Suze: Your mama was 82.

KT: Yeah. Well, guess what? We're not far from 78. She had a lot of health issues, but I was hoping we still had more time with her. It's been very hard for us the last few weeks. My mom's financial advisor just called and wants us to transfer the annuities my mom had by the 1035 exchange into annuities for my siblings. And I, so we aren't taxed. He said the annuities gained 146,000 with him, but he thinks there may be an overall gain of 300,000 since my mom had the annuities prior to him, my siblings and I are the beneficiaries just from these two annuities. We would inherit a little over $300,000 each. The total portfolio my mom had with him is 1.8 million. He wants to do a death claim now, while the market's up and convert the inheritance into individual annuities for the three of us, so he wants to keep the annuities. Wait.

KT: So my mom, hold on, hold on. My mom had funds with other advisers as well. She had more annuities, blah, blah, blah, blah. But then here's what the the clincher is. Simone said our estate lawyer last week said hold off on distributing anything because he needs to calculate mom's death taxes. And shockingly enough, some of my mom's things are going to go through probate. So what should we do about the annuities?

KT: So I think listen to the lawyer.

Suze: I think number one, you always listen to the lawyer, but number two, you can do a 1035 exchange any time you want. There's no rush in it. What is a 1035 exchange? It's when you have money in an annuity, it has grown in value. You're now out of the surrender period because you've held it for so long.

Suze: And now most likely your broker wants to make another commission. So they convince you to do what's called a 1035 exchange where you can go from one annuity that you're already out of the surrender period with to another brand new annuity that earns the broker another five or 7% commission on that amount. Your surrender period starts all over again.

Suze: And that's really usually the only reason one does at 1035 exchange because a good annuity is always a good annuity. It's not like there's a better one most likely that you would do that with. That's number one, number two, besides this Simone besides me talking about this, do you all understand now why I don't like annuities?

Suze: Because when you die and it goes down to your children or your beneficiaries, they are going to owe ordinary income taxes on any amount above your original deposit and they're kind of stuck now. So all this money that you see in this annuity is not what they're gonna get. So if it were me, I would be advising you pay the taxes now, while the taxes are still relatively low, if you want, you can leave the money in there and rather than taking all $300,000 of gain or whatever it is out at once, take $50,000 out this year, $50,000 out next year, whatever it may be be and spread it.

Suze: So you're not paying so much in taxes because it's not that big of a hit. It's not like the money necessarily has to come out at once. Unless those are the rules of the annuity. If they are the rules of this particular annuity where you have to take the money out at once, I would just take the hit now rather than just postpone it and have it get bigger and bigger and bigger.

Suze: I don't know your age and where you are right now, I don't know if you need the money or not. So I just wouldn't continue on this path. So it's, but I wouldn't be doing anything at this point until your lawyer and I would see a CPA, I would not be taking the advice of the financial advisor. I would be seeing a CPA who could look at your annuities and know exactly what your taxable situation is going to be.

Suze: Alright. KT, Did you read that part? You did, didn't you mommy has many more annuities and the broker wants to put like 1.8 million more in what? In annuities? Like? Are you just kidding me with these annuities? Everybody? Stop it, stop it. Alright, KT, it's quizzy time. But even though I chose this, I want you to read it. Somebody has a little crush on you.

KT: Now, I know why. This is from John. KT, I love listening on Thursdays because your Joli voile adds so much to the podcast. I think your happy voice. Your happy life. Thank you. I said, please don't let Suze think I'm stupid for asking this. You never... a question is never stupid.

Suze: When have I ever thought anybody was stupid

KT: Yea, sometimes... You've, you've got you say to people?

Suze: No, I say the advice they've been given is stupid. Not that they're stupid.

KT: There's never a stupid question. So this is the question: if we invest and not speculate because no one can beat the market S and P 500 or Dow, then why don't we just dollar cost average all of our money into Dow Jones and, or the SP 500 ETFs. Bye bye.

Suze: And what would you say?

KT: Oh, so I have to answer this.

KT: Hm. Yeah, I think that's a good idea.

Suze: So you would say...

KT: Why don't we just dollar cost average all of our money into the Dow Jones and, or S and P 500 ETF.

Suze: But why did it say right before that? Because nobody can beat the market.

KT: It says because no one can beat the market. So instead of speculating, why don't you just keep dollar cost averaging? I think that's a great idea. If you don't want, no one can beat the market. How do you know? Because I don't think you should try.

Suze: Keith Fitzgerald has been beating the markets big time. Many investors have been beating the markets, big time. Many mutual funds or ETFs have been beating the market.

KT: John, let's ask Suze, what would you do?

Suze: I would do what I do do. And it's listen, John, if you just want to get normal market returns...

KT: And be safe

Suze: And be safe as safe as one can be.

KT: And secure.

Suze: Can one be safe and secure in the market, KT?

KT: You can't beat it and you can never have a guarantee of safe and secure.

Suze: So then you wouldn't say safe and secure if you just want average returns and you just want diversification and that's the way you wanna go. Absolutely nothing at all wrong with the S and P 500. The Vanguard Total Stock Market Index, Dow Jones Industrial average. I don't have a problem with that.

Suze: However, I do think given certain areas right now of investing besides those things you should own like the QQQs, you should own the SMH, you should own things or individual stocks that are really part of what's happening far more than just averaging in, into the Standard and Poors 500 index or whatever you want to like that. So I do think there's a better way today doing it rather than just doing that. But hey, if that's what you wanna do, go for it, boyfriend, you have nothing to lose and really everything to gain as long as you are investing dollar cost averaging being part of the market in whatever way you feel secure, you should do that. 

Suze: All right, KT. I don't know if I'm ding ding dinging you or (Suze makes the wrong answer noise). I'm not sure.

KT: I think that my my answer was a good one for John that if he feels safe just doing a dollar cost average. Nothing wrong with that.

Suze: Ding ding, ding, ding, ding. Yeah, baby. All right. Take us out KT.

KT: There's only three things I want you to remember and so does Suze. And they are people first, then money, then things.

Suze: And if they do that what happens?

KT: You will be unstoppable.

Suze: Yeah. See you on Sunday. Bye bye.