March 20, 2025 • 30 mins
For this Ask KT & Suze Anything edition, Suze answers your questions about the Pro-Rata Rule, long term care insurance, and transfer on death deeds. Plus, learn the difference between Aristocrat and King stocks and more!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Suze (00:29):
March 20th, 2025. Welcome everybody to the Women and Money
podcast as well as everybody smart enough to listen.
KT (00:38):
You sound a lot better, Suze.
Suze (00:40):
Not a lot.
KT (00:41):
Not well, my first question is kind of funny because
it references your nasally voice. You sound a lot better,
Suze (00:49):
but you have
to say this is the KT and Suze edition, right.
KT (00:53):
Oh, hey everybody, this is the KT...
Suze (00:57):
Do you think you'll ever get this?
KT (01:00):
No, this is the ask Suze anything and KT will
ask the question.
Suze (01:06):
And to do so, just go to this, this is,
should we start over everybody, but
KT (01:11):
anyway, just keep going.
Suze (01:12):
All you need to know is this is the podcast
where if you've written in a question to ask Suze
SUZE podcast at gmail.com, and if KT chooses it, then
we answer it on this podcast.
But guess what else, KT?
KT (01:29):
Oh, let's tell them about our new fun YouTube channel.
Suze (01:33):
Yeah, so we,
KT (01:34):
Suze's been having so much fun, everybody.
So Suze and Amy, her executive producer of Donkey's Years
at the CNBC Suze Orman Show, have gotten together and
they collaborated and created the most fun Can I Afford
it game on YouTube on Suze's
channel.
Suze (01:53):
So the way that it works is that because a
lot of you say you miss it, so you'll go there,
go to YouTube, Y O U T U B E.com.
Slash Suze Orman, S U Z E O R M
A N, and you'll see it there's only like 4
or 5 up there, but you'll see what we did.
You will get to decide if I approved or I
(02:17):
denied you push a little button and then we'll see
if you're right or wrong. So check it out, everybody. It's,
I think it's a lot of fun.
KT (02:25):
A lot of fun. I play.
Suze (02:27):
I think I look so cute. I can't tell you.
KT (02:29):
Yeah, tell us how you, if you like it, and we'll,
we'll keep doing it. It's great.
Suze (02:34):
All right,
KT (02:35):
All right. Are we ready? So my first question is
from William, and he said, Suze, I loved hearing you
get sassy with KT with that nasally voice of yours.
Hope you're feeling better.
And he's asking a question about the pro rata rule.
He said, You've talked about it a few times. I've
gone back and listened to old episodes. I try to
(02:57):
track down an answer, and I'm still so confused. And
he said, I think Suze, I made a big mistake.
I wanted to consolidate some old 401ks in 2024 and
decided I would be better off managing the money myself
in a Fidelity account.
So he combined a Roth IRA and a rollover IRA separately.
(03:21):
It was a mixture of Roth and non Roth contributions.
End of the day, he said, now of course I
want to do a backdoor Roth. I don't think it's
possible because of the pro rata rule.
Suze (03:33):
Wait, I'm very confused.
KT (03:36):
He is too. Take a, take a look. I want her to
read it, everybody, because this, he is
confused.
Suze (03:42):
So it was a mixture of Roth and non-Roth contributions. Oh,
so the non Roth went into your Roth IRA and
then the non-Roth went into a rollover IRA separately and
now you want to do a back a back door.
And the question is, should you, should he or
KT (04:02):
Can I don't think he can.
Suze (04:04):
But should he, KT, this is your quizzy right off the bat.
KT (04:07):
No, he's gonna have to pay taxes.
Suze (04:09):
Do you know how much in taxes?
KT (04:10):
No, I think for the one, no, I don't.
Suze (04:13):
Do you even know how to figure it out?
KT (04:15):
No.
Suze (04:16):
All right, so let's tell William what he needs to know.
So what all of you need to know in terms
of what am I talking about, there is this crazy
tax rule that says if you have any pre-tax retirement accounts.
An IRA, an IRA rollover, a SEP IRA, a simple IRA,
(04:43):
anything with the initials IRA, which means individual retirement account,
so that's in your name. If you have anything with
those three letters, if you then decide to do a
backdoor Roth IRA.
You are going to have to pay taxes based on
(05:05):
a pro rata rule, and let's just say, William, you
wanted to contribute $7000 this year to your Roth and
let's just say you have, we'll throw out a figure
$14,676 whatever it is, in all of your IRAs that
(05:26):
you have.
What you need to do then is you need to
add those two together $14,676 or whatever is really in
your account, William, plus $7000 what you want to contribute,
and that comes to $21,676.
(05:50):
Then what you need to do is you need to
divide the $7000.
That you want to put into the back door Roth
by the $21,676 and that comes out to 32.3% or
(06:11):
if you then were to times $7000 by that amount,
$4,739 would be taxable. So is it worth it for
you to do that?
I don't know. Is it possible for you to take
your rollover that you did and put it back into
your 401k somehow or wherever you're working? If not, I
(06:36):
have to tell you you're just better off doing an
IRA with all pre-tax money.
And then converting it and pay taxes on the whole thing.
KT (06:48):
Tell everyone I'm sitting here. What am I doing, Suze? My
head is spinning,
Suze (06:52):
But you have to know the formula, everybody, in terms
of how much will you pay in.
Taxes if in fact you have to do a backdoor
roth and you have to do a backdoor roth if
you're making more money on a modified adjusted gross income
that's allowable for you to contribute to a Roth just
(07:13):
that simple.
KT (07:15):
She says, just that simple for you. It's just that simple,
but not for the rest of us.
Suze (07:20):
Well here's your
quizzy again.
KT (07:21):
Oh my goodness.
Suze (07:22):
What are those amounts, KT?
KT (07:24):
I don't have a clue. Come on, I don't have
a clue.
Well, I don't have a clue.
Suze (07:29):
No clue.
KT (07:31):
No, I would say the amounts would be the maximum
that I'm allowed to put in.
Suze (07:36):
For those of you who are single, if you make
under $150,000 a year of modified adjusted gross income, you
can contribute a full $7000 to a Roth. And if
you're over that, if you're over 50 years of age,
you can contribute 80. Once your income starts to go.
Up the amount you can contribute goes down, and once
(07:58):
you make over $165,000 you no longer can contribute to
a Roth. Married filling jointly, it's 236 up to 246.
So obviously if you make more than that, what you
do to get into a Roth is you open up
a non-deductible IRA and you simply convert to a
(08:21):
but you can only do that if you do not
have any other pre-tax IRAs. All right, KT.
KT (08:29):
Just that simple. OK. Next is from Amanda. Hi, Suze,
I'm 53 with $250,000 at this point. Since it's losing
money daily in a Roth and IRA would now be
the time to move the money to cash.
Then she says, I really can't afford to take much
(08:51):
more of a hit. Do I ride it out? She said,
I know one thing, Suze, you always say, don't let
fear make rash decisions.
So she's asking you, should she ride it out. Edward Jones,
by the way, is her portfolio manager, and they keep
telling her they're in good Fortune 500 companies, but she's,
(09:14):
if you read the whole thing, she's scared, she's full
of fear, and I think she should put it in
cash and forget about it for a while.
Suze (09:24):
If you really can't afford, my dear Amanda to take
much more of a hit, that says to me this
is money that may be never originally belonged in the
stock market. Remember, money in the stock market is only
money that you will not need for at least 5
(09:44):
years or longer, because that's how long it usually takes
to go from the top of a market to the
bottom back up to the top.
If this is making you lose sleep at night, and
I don't know how much money you have lost cause
you don't say that anywhere in here you just say
it seems to be losing money daily. The question is really,
(10:08):
if you gave them $250,000 sometime a year ago or whatever,
has it gone up above the $250,000 and now let's
say it went to $350 and now it's like at 325, 300, 275.
The question is, are you now below what you initially invested?
(10:34):
Or are you just losing money that was a profit?
If you're just losing profit right now, I would tell
you to absolutely stay there as long as you know
they're in good quality stocks. However, if it's your principle
that you are now losing, I would probably come out.
(10:55):
Because either way you're going to lose sleep at night
and you could take this money and you could put
them in to treasuries or CDs and have it earn
a nice 4 4.5% interest for you right around there
and you could sleep at night. So it just depends.
But I know I say don't let fear make rash
(11:16):
decisions for you, but this seems to me that this
isn't a rash decision. This is where you have been
watching this go down over and over and over, right?
So you have to do really...
KT (11:29):
What makes you sleep at night.
Suze (11:31):
What makes you sleep at night, and I hope that
made sense to you, Amanda.
KT (11:34):
OK, my next question is from Leslie.
Love listening to the podcast and learning from you. A
few weeks ago you reminded us that you can take
out what you have contributed to a Roth IRA tax
free and without penalty. I'm a 37...
Suze (11:52):
I hear it coming now.
KT (11:53):
Wait.
Suze (11:53):
I hear it coming. She wants to take it out.
Go on.
KT (11:56):
No, no, no, she's really smart. I am a 37
year old mom of two little ones, and I'm going
to need a new car soon.
Now this is important. She needs the car sometime within
the next 5 years. She's trying to stretch it. I'd
like to purchase my vehicles in full to avoid paying
more in interest. I plan on starting to squirrel away
(12:19):
the money in a separate file with my HYS high
yield savings account, but if I can't save the entire amount
before I need a new car, would you recommend using
money from our savings? We have $20,000 plus $10 in
an emergency to do this, or from the Roth, which
(12:41):
she has $124k.
I, I can answer this.
Suze (12:47):
All right, quizzy, quizzy,
KT (12:49):
You don't... don't touch the Roth.
Suze (12:50):
And do what?
KT (12:53):
Oh, I don't know what to say. Out of these
two choices, KT says, don't go near the Roth.
Suze (12:59):
Don't go near the Roth, whatever you do, don't go
near the Roth. It's fine with me if you have
20,000 there in your savings plus 10 in emergency. I'm
fine with you taking that money to pay off your car. Why?
Because if you need money...
needed it because you've lost your job or in an accident,
(13:22):
you have your Roth there that you could easily take
out that $10,000 or whatever it is you could take
it out then.
But don't take it out from there or ever hopefully,
because that's money that's compounding free for you, tax free.
So I would be taking it from the 20,000 or
(13:43):
the 10,000 or whatever it is that you needed from.
KT (13:46):
Stretch that car. Our car is how old Suze?
Suze (13:49):
Going on 13
years.
KT (13:51):
So Suze, my next question. Hi KT and Suze, I
love you both so much. I've been a faithful listener
and fan before Suze was even on TV. Whoa, Susan's old.
Actually she is old.
I said thank you, thank you, thank you, Suze, for
(14:12):
everything you've taught me and thank you for your joviality
and sweet support KT. So the question is this...
Suze (14:19):
You are just so sweet, aren't you? She's the sweetest.
KT (14:21):
When does it make sense to drop a long-term care policy?
I can answer this one too. I am 4 years
into paying for it, but I'm now worth 1.4 million,
and I'm wondering if it's time for me to start
investing
the premium dollars myself and plan to self fund. Ready.
She's 60 years old. Excellent health, no partner or living children.
(14:45):
She owns her own home outright. No debt, stable employment,
and stable side hustle. This is from Susan.
Suze (14:55):
Susan, I know it's hard to keep paying that, thinking
you're never going to need it, you know, whatever, but
in your particular situation, if you can easily afford it.
And maybe you can easily afford a projection of a 30%
price increase and you still could easily afford it. I
(15:18):
would so keep it I can't even tell you, but
at 60, you know, you feel great, most likely that
you can do anything and
I'm sorry to say I personally have experienced that that's
not exactly true. I, I've had many major things actually,
(15:38):
everybody go wrong with me, and they always turned out right.
KT (15:43):
But we fixed her.
Suze (15:44):
We fixed it, every single one of them, and there
were many, trust me, but the truth of the matter is,
if I didn't have KT,
I don't know, especially the last operation I had 5
years ago, how I would have gotten through it.
And that's when the long term care would have come
(16:05):
in handy, trust me, so you have to think that way.
So if you can easily afford it, keep it. If
you can't and you think you're gonna drop it anyway
a year from now or 2 years from now or
3 years from now because it's a struggle, then drop
it now because there's nothing worse with paying for it
(16:28):
and paying for it and paying for it.
And then all of a sudden, you decide you can't
afford it anymore and now you wasted all that money.
All
right.
KT (16:39):
OK, so next question is from Scott. He said, my
husband works for IBEW.
I, I picked this because I, I like IBEW. It's
the International Brotherhood of Electrical Workers.
Suze (16:53):
Because of your uncle...
KT (16:55):
And my grandpa, they were all electricians.
The union provides legal service benefits, and they're in the
process of preparing a will, Suze.
I know you are pro revocable trust, but one of
the advisers said that a law was passed last year
that we can do a transfer on death deed with
our home to our two children instead. Can you please
(17:19):
tell me the pros and cons of both so I
can make a better informed decision?
Suze (17:24):
The
only pro of it.
If you never get sick, if you never become incapacitated
and everything, and then you die and obviously you own
it in joint tenancy with right of survivorship to your spouse,
that at that point when the spouse dies, it goes
to the kids. That's it, no probate, simple.
(17:45):
But life isn't simple, my friend. A transfer on death
deed doesn't help you. All of a sudden you own
this home, you and your husband, and now one of
you became incapacitated. You had a stroke. You had a
car accident, and you needed to sell the house.
(18:07):
But you own it in joint tenancy with right of survivorship.
The question is, if your spouse is incapacitated, can you
sell the house? And the answer to that question is no,
you cannot because it takes two signatures on that deed
to sell the house. And since your spouse now is incapacitated,
(18:30):
you're going to have to go down to probate court.
You're going to get a conservatorship assigned to him. That's
going to cost you money.
And from that point on, every year you have to
check back with the court to make sure that what
you're doing with his half of the money,
it is legit.
A transfer on death deed doesn't help you in any way.
(18:53):
Same thing as a will, a will, obviously you have
to pay probate, but it doesn't help you in case
of the what ifs of life. It doesn't help you
if you need to sign checks for your spouse or
do all kinds of things.
Therefore, I would go to musthadocs.com. It'll cost you $99
(19:15):
and you can get $2500 worth of state of the
art documents good in every single state. I would check
it out. Not only do you get a will and
a trust, you get a durable power of attorney for
health care and an advance directive and a financial power
of attorney.
So while it's true that they're giving him this thing,
(19:36):
they're preparing a will which is fabulous.
I will always tell you a will is not enough.
And therefore I will believe it to the day that
I die cause I've seen it too many times. What happens?
KT (19:51):
OK, OK. Next is from KP, she said, Suze, I'm
retiring later this year. Me and my 90 year old
mom want to move out of state to be closer
to my daughter. We plan to live together in our
new home. We're trying to
figure out who should pay for our new home and
how to hold the title. I currently own my home
(20:14):
outright and would like to use it as a rental
when we move. My mom is very financially secure, has
enough extra cash to easily purchase our new home outright.
I am her only living child and sole beneficiary.
My question, would it make more sense for her to
buy our new home in trust so that I would
(20:37):
inherit it when she passes? Should she give me the
funds or some of the funds so I can purchase
the house in my own name, or should I just
sell my current home and buy our new home myself?
I don't want a mortgage, and the only way I
can pay for our new home outright is if I
sell my current home.
(20:59):
My current house will rent for about 4000 a month.
Please help.
Um, KP sounds like she and her mom absolutely love
each other, and what I think that you need to
do is help her decide what's the best way to, to do this.
Suze (21:13):
Oh, this one's simple, KT, so simple. Listen, if mommy
has the money and she doesn't care, let mommy pay
for it outright, obviously in a living revocable trust with
you as the successor beneficiary. She is the primary beneficiary.
That it's held in trust for her benefit while she's alive,
your benefit after she has died. The reason you want
(21:37):
to do that is for a few reasons, truthfully. Let's
say you buy it and it's $500,000. Let's just say
that's what it is. And then all of a sudden
it goes to 600,000, 700,000, 800,000, and then mama dies.
Now it goes to you. You get a step up
in cost basis on that house as if you had
(21:59):
purchased it for $800,000. Then when you turn around and
sell it, that's your cost basis plus you get $250,000
exemption as well. So mamma should absolutely do it in
her name, a living revocable trust with you and her beneficiaries.
(22:20):
All right.
In terms of selling your home, listen, if you have
what it takes to be a landlord, which is a lot,
just so you know, right, then keep your house and
rent it out, but make sure you do the math
on it. What would you get for that house after
taxes and if invested at like 4%, how much would
(22:42):
that come out to be every single year?
And maybe you never know, you get more by selling
it and investing it that way, or the equal amount
as if you're getting it when you are renting it.
So just check it out and then you'll know which
one you should do.
KT (23:00):
Yeah, plus being a landlord out of state could be
a little tricky, yeah, complicated.
Suze (23:06):
Unless she has good tenants. All right, OK,
KT (23:08):
so next question is from Monina. I like that name Monina.
Suze (23:12):
You like every name.
KT (23:13):
No, this
is a great name Monina.
It's me again.
It's Monina again. I've written to you before and you
actually replied to my email about paying off my mortgage
with my savings.
Suze (23:27):
I do answer you personally every once in a while.
KT (23:30):
She said. I followed your advice and my home condo
is paid off. I am proud of that, but I'm
a little anxious about my savings. I'm slowly building my
emergency fund currently at 6 months
working towards 12 or more, what is a person to
do next once you've funded your revocable living trust, maxed
(23:50):
your 401k Roth contribution, received the max matching from my employer,
built your emergency fund, and carry no debt, but want
to continue to maximize my retirement fund.
Do I just wait till I'm 59 and a half years old
to convert? Is there no way around the pro rata rule?
(24:11):
I've enjoyed your Roth Quizzy Sunday so much. So there
you go, Monina.
Suze (24:17):
Monina, listen to me.
KT (24:18):
She sounds like she's doing great.
Suze (24:20):
It's so funny that so many of you write with
this particular question where you feel like, hey, if you
can't contribute to this retirement account or that retirement account,
you have no other way to invest.
And the truth of the matter is, the majority of
our money, it's not in retirement accounts, they're in investment
(24:43):
accounts where you're buying stock and buying bonds and buying
this and buying that and it's fabulous. So you just
simply start a regular account at any discount brokerage firm
that you like.
And when you buy something and let's say you buy
an ETF and you're going to keep it for a
(25:04):
long time while the money's in there, you're not paying
taxes on it, so it will grow and it will
grow and grow just like a retirement account, but in
an investment account, when you do sell it, if it's
after one year of holding it, you only pay capital gains.
In a pre-tax IRA you're gonna pay ordinary income tax.
(25:27):
I can actually make a case that an investment account
in the long run might even be better than a
pre-tax IRA, just so you know. All right.
KT (25:38):
OK. Last question, Suze, from Christian. Dear Suze and KT,
thank you for everything you do. I'm trying to build out.
Suze (25:45):
KT, when you read these and they say thank you
and they love us, how does it make you feel?
KT (25:51):
Great.
Especially when they really, really love my contribution.
Suze (25:56):
Of course,
of course. Well, what was wrong with me? Of course. All right.
KT (26:01):
Thank you for everything you do. I'm trying to build
out a piece of my portfolio that is focused solely
on dividends with the hope of covering my main living
expenses at some point. This is why I picked this one.
My friend sent me an article about Aristocrat and King stocks.
(26:21):
I don't have a clue what those are, Suze. That's
why I picked this question. I am unsure of where
to start. Would you focus on dividend Aristocrat or King stocks?
There are also dividend Aristocrat ETFs. So there you go.
She's 42. She has one year of emergency savings, no debt,
and 350,000 in retirement accounts.
(26:44):
So tell me what Aristocrat and King stocks are.
Suze (26:48):
An Aristocrat...
KT (26:49):
Sounds very regal.
Suze (26:50):
...is a stock that has raised its dividend for 25
years in a row. A King is a stock that
has raised its dividend for 50 years in a row.
If I were going to be investing at this point
in time between one or the other, I would be
(27:14):
investing in the Aristocrats because I just think you'll get
a little bit higher dividend and possibly some more growth
than you would from the Kings, but either way it's fine.
There are dividend Aristocrat ETFs, one of them that I
have recommended on this podcast for years now.
Symbol is NOBL. It's about $102 a share, and it's
(27:40):
the Standard and Poor's Pro Shares 500 dividend Aristocrats ETF.
So all the stocks in there are Aristocrats. So that's
one of them. There are many of them. Just do
a search and they'll all come up, but that's the
one that I've been investing in,
if you want conservative, I like other dividend stocks that
(28:02):
are not Aristocrats that are paying a higher dividend, but
that's not your question. Although Pfizer would be the answer
to that. Anyway, all right, everybody, that brings us to
the end of today's. You don't get a quizzy because
you had 3 or 4.
KT (28:17):
I did, yeah, I got them right,
Suze (28:20):
Ready. This is a quizzy ready, KT.
If people want to go and see and play the
can I afford a game that we have on my
YouTube channel? What is the URL?
Look at her little face.
KT (28:34):
The URL is go to youtube.com/suzeorman
ding ding ding ding ding
Suze (28:41):
ding ding ding
KT (28:42):
Because I love playing those games. They're fun.
Suze (28:46):
It's a fun thing.
KT (28:47):
Yeah, tell us if you like them. They're fun.
Suze (28:49):
So that's again YouTube, Y O U T U.com/ Suze
S U Z E Orman.
Go on, do it. They're free and then there's only
a few of them, right? And then post on the
board on the Women and Money app if you liked
it or not, because you never know when I'll actually
do one where you can call in and that little
(29:11):
emoji that you're going to see will tell you if
you're approved or denied.
In real time, so let me know. All right, everybody,
until Sunday. There's only one thing we want you to
remember when it comes to your money. What is it,
my little sweet?
KT (29:26):
People first, then money, then things.
Suze (29:29):
Yes, indeed. So all of you stay safe. Bye bye now.
March 20th, 2025. Welcome everybody to the Women and Money
podcast as well as everybody smart enough to listen.
KT (00:38):
You sound a lot better, Suze.
Suze (00:40):
Not a lot.
KT (00:41):
Not well, my first question is kind of funny because
it references your nasally voice. You sound a lot better,
Suze (00:49):
but you have
to say this is the KT and Suze edition, right.
KT (00:53):
Oh, hey everybody, this is the KT...
Suze (00:57):
Do you think you'll ever get this?
KT (01:00):
No, this is the ask Suze anything and KT will
ask the question.
Suze (01:06):
And to do so, just go to this, this is,
should we start over everybody, but
KT (01:11):
anyway, just keep going.
Suze (01:12):
All you need to know is this is the podcast
where if you've written in a question to ask Suze
SUZE podcast at gmail.com, and if KT chooses it, then
we answer it on this podcast.
But guess what else, KT?
KT (01:29):
Oh, let's tell them about our new fun YouTube channel.
Suze (01:33):
Yeah, so we,
KT (01:34):
Suze's been having so much fun, everybody.
So Suze and Amy, her executive producer of Donkey's Years
at the CNBC Suze Orman Show, have gotten together and
they collaborated and created the most fun Can I Afford
it game on YouTube on Suze's
channel.
Suze (01:53):
So the way that it works is that because a
lot of you say you miss it, so you'll go there,
go to YouTube, Y O U T U B E.com.
Slash Suze Orman, S U Z E O R M
A N, and you'll see it there's only like 4
or 5 up there, but you'll see what we did.
You will get to decide if I approved or I
(02:17):
denied you push a little button and then we'll see
if you're right or wrong. So check it out, everybody. It's,
I think it's a lot of fun.
KT (02:25):
A lot of fun. I play.
Suze (02:27):
I think I look so cute. I can't tell you.
KT (02:29):
Yeah, tell us how you, if you like it, and we'll,
we'll keep doing it. It's great.
Suze (02:34):
All right,
KT (02:35):
All right. Are we ready? So my first question is
from William, and he said, Suze, I loved hearing you
get sassy with KT with that nasally voice of yours.
Hope you're feeling better.
And he's asking a question about the pro rata rule.
He said, You've talked about it a few times. I've
gone back and listened to old episodes. I try to
(02:57):
track down an answer, and I'm still so confused. And
he said, I think Suze, I made a big mistake.
I wanted to consolidate some old 401ks in 2024 and
decided I would be better off managing the money myself
in a Fidelity account.
So he combined a Roth IRA and a rollover IRA separately.
(03:21):
It was a mixture of Roth and non Roth contributions.
End of the day, he said, now of course I
want to do a backdoor Roth. I don't think it's
possible because of the pro rata rule.
Suze (03:33):
Wait, I'm very confused.
KT (03:36):
He is too. Take a, take a look. I want her to
read it, everybody, because this, he is
confused.
Suze (03:42):
So it was a mixture of Roth and non-Roth contributions. Oh,
so the non Roth went into your Roth IRA and
then the non-Roth went into a rollover IRA separately and
now you want to do a back a back door.
And the question is, should you, should he or
KT (04:02):
Can I don't think he can.
Suze (04:04):
But should he, KT, this is your quizzy right off the bat.
KT (04:07):
No, he's gonna have to pay taxes.
Suze (04:09):
Do you know how much in taxes?
KT (04:10):
No, I think for the one, no, I don't.
Suze (04:13):
Do you even know how to figure it out?
KT (04:15):
No.
Suze (04:16):
All right, so let's tell William what he needs to know.
So what all of you need to know in terms
of what am I talking about, there is this crazy
tax rule that says if you have any pre-tax retirement accounts.
An IRA, an IRA rollover, a SEP IRA, a simple IRA,
(04:43):
anything with the initials IRA, which means individual retirement account,
so that's in your name. If you have anything with
those three letters, if you then decide to do a
backdoor Roth IRA.
You are going to have to pay taxes based on
(05:05):
a pro rata rule, and let's just say, William, you
wanted to contribute $7000 this year to your Roth and
let's just say you have, we'll throw out a figure
$14,676 whatever it is, in all of your IRAs that
(05:26):
you have.
What you need to do then is you need to
add those two together $14,676 or whatever is really in
your account, William, plus $7000 what you want to contribute,
and that comes to $21,676.
(05:50):
Then what you need to do is you need to
divide the $7000.
That you want to put into the back door Roth
by the $21,676 and that comes out to 32.3% or
(06:11):
if you then were to times $7000 by that amount,
$4,739 would be taxable. So is it worth it for
you to do that?
I don't know. Is it possible for you to take
your rollover that you did and put it back into
your 401k somehow or wherever you're working? If not, I
(06:36):
have to tell you you're just better off doing an
IRA with all pre-tax money.
And then converting it and pay taxes on the whole thing.
KT (06:48):
Tell everyone I'm sitting here. What am I doing, Suze? My
head is spinning,
Suze (06:52):
But you have to know the formula, everybody, in terms
of how much will you pay in.
Taxes if in fact you have to do a backdoor
roth and you have to do a backdoor roth if
you're making more money on a modified adjusted gross income
that's allowable for you to contribute to a Roth just
(07:13):
that simple.
KT (07:15):
She says, just that simple for you. It's just that simple,
but not for the rest of us.
Suze (07:20):
Well here's your
quizzy again.
KT (07:21):
Oh my goodness.
Suze (07:22):
What are those amounts, KT?
KT (07:24):
I don't have a clue. Come on, I don't have
a clue.
Well, I don't have a clue.
Suze (07:29):
No clue.
KT (07:31):
No, I would say the amounts would be the maximum
that I'm allowed to put in.
Suze (07:36):
For those of you who are single, if you make
under $150,000 a year of modified adjusted gross income, you
can contribute a full $7000 to a Roth. And if
you're over that, if you're over 50 years of age,
you can contribute 80. Once your income starts to go.
Up the amount you can contribute goes down, and once
(07:58):
you make over $165,000 you no longer can contribute to
a Roth. Married filling jointly, it's 236 up to 246.
So obviously if you make more than that, what you
do to get into a Roth is you open up
a non-deductible IRA and you simply convert to a
(08:21):
but you can only do that if you do not
have any other pre-tax IRAs. All right, KT.
KT (08:29):
Just that simple. OK. Next is from Amanda. Hi, Suze,
I'm 53 with $250,000 at this point. Since it's losing
money daily in a Roth and IRA would now be
the time to move the money to cash.
Then she says, I really can't afford to take much
(08:51):
more of a hit. Do I ride it out? She said,
I know one thing, Suze, you always say, don't let
fear make rash decisions.
So she's asking you, should she ride it out. Edward Jones,
by the way, is her portfolio manager, and they keep
telling her they're in good Fortune 500 companies, but she's,
(09:14):
if you read the whole thing, she's scared, she's full
of fear, and I think she should put it in
cash and forget about it for a while.
Suze (09:24):
If you really can't afford, my dear Amanda to take
much more of a hit, that says to me this
is money that may be never originally belonged in the
stock market. Remember, money in the stock market is only
money that you will not need for at least 5
(09:44):
years or longer, because that's how long it usually takes
to go from the top of a market to the
bottom back up to the top.
If this is making you lose sleep at night, and
I don't know how much money you have lost cause
you don't say that anywhere in here you just say
it seems to be losing money daily. The question is really,
(10:08):
if you gave them $250,000 sometime a year ago or whatever,
has it gone up above the $250,000 and now let's
say it went to $350 and now it's like at 325, 300, 275.
The question is, are you now below what you initially invested?
(10:34):
Or are you just losing money that was a profit?
If you're just losing profit right now, I would tell
you to absolutely stay there as long as you know
they're in good quality stocks. However, if it's your principle
that you are now losing, I would probably come out.
(10:55):
Because either way you're going to lose sleep at night
and you could take this money and you could put
them in to treasuries or CDs and have it earn
a nice 4 4.5% interest for you right around there
and you could sleep at night. So it just depends.
But I know I say don't let fear make rash
(11:16):
decisions for you, but this seems to me that this
isn't a rash decision. This is where you have been
watching this go down over and over and over, right?
So you have to do really...
KT (11:29):
What makes you sleep at night.
Suze (11:31):
What makes you sleep at night, and I hope that
made sense to you, Amanda.
KT (11:34):
OK, my next question is from Leslie.
Love listening to the podcast and learning from you. A
few weeks ago you reminded us that you can take
out what you have contributed to a Roth IRA tax
free and without penalty. I'm a 37...
Suze (11:52):
I hear it coming now.
KT (11:53):
Wait.
Suze (11:53):
I hear it coming. She wants to take it out.
Go on.
KT (11:56):
No, no, no, she's really smart. I am a 37
year old mom of two little ones, and I'm going
to need a new car soon.
Now this is important. She needs the car sometime within
the next 5 years. She's trying to stretch it. I'd
like to purchase my vehicles in full to avoid paying
more in interest. I plan on starting to squirrel away
(12:19):
the money in a separate file with my HYS high
yield savings account, but if I can't save the entire amount
before I need a new car, would you recommend using
money from our savings? We have $20,000 plus $10 in
an emergency to do this, or from the Roth, which
(12:41):
she has $124k.
I, I can answer this.
Suze (12:47):
All right, quizzy, quizzy,
KT (12:49):
You don't... don't touch the Roth.
Suze (12:50):
And do what?
KT (12:53):
Oh, I don't know what to say. Out of these
two choices, KT says, don't go near the Roth.
Suze (12:59):
Don't go near the Roth, whatever you do, don't go
near the Roth. It's fine with me if you have
20,000 there in your savings plus 10 in emergency. I'm
fine with you taking that money to pay off your car. Why?
Because if you need money...
needed it because you've lost your job or in an accident,
(13:22):
you have your Roth there that you could easily take
out that $10,000 or whatever it is you could take
it out then.
But don't take it out from there or ever hopefully,
because that's money that's compounding free for you, tax free.
So I would be taking it from the 20,000 or
(13:43):
the 10,000 or whatever it is that you needed from.
KT (13:46):
Stretch that car. Our car is how old Suze?
Suze (13:49):
Going on 13
years.
KT (13:51):
So Suze, my next question. Hi KT and Suze, I
love you both so much. I've been a faithful listener
and fan before Suze was even on TV. Whoa, Susan's old.
Actually she is old.
I said thank you, thank you, thank you, Suze, for
(14:12):
everything you've taught me and thank you for your joviality
and sweet support KT. So the question is this...
Suze (14:19):
You are just so sweet, aren't you? She's the sweetest.
KT (14:21):
When does it make sense to drop a long-term care policy?
I can answer this one too. I am 4 years
into paying for it, but I'm now worth 1.4 million,
and I'm wondering if it's time for me to start
investing
the premium dollars myself and plan to self fund. Ready.
She's 60 years old. Excellent health, no partner or living children.
(14:45):
She owns her own home outright. No debt, stable employment,
and stable side hustle. This is from Susan.
Suze (14:55):
Susan, I know it's hard to keep paying that, thinking
you're never going to need it, you know, whatever, but
in your particular situation, if you can easily afford it.
And maybe you can easily afford a projection of a 30%
price increase and you still could easily afford it. I
(15:18):
would so keep it I can't even tell you, but
at 60, you know, you feel great, most likely that
you can do anything and
I'm sorry to say I personally have experienced that that's
not exactly true. I, I've had many major things actually,
(15:38):
everybody go wrong with me, and they always turned out right.
KT (15:43):
But we fixed her.
Suze (15:44):
We fixed it, every single one of them, and there
were many, trust me, but the truth of the matter is,
if I didn't have KT,
I don't know, especially the last operation I had 5
years ago, how I would have gotten through it.
And that's when the long term care would have come
(16:05):
in handy, trust me, so you have to think that way.
So if you can easily afford it, keep it. If
you can't and you think you're gonna drop it anyway
a year from now or 2 years from now or
3 years from now because it's a struggle, then drop
it now because there's nothing worse with paying for it
(16:28):
and paying for it and paying for it.
And then all of a sudden, you decide you can't
afford it anymore and now you wasted all that money.
All
right.
KT (16:39):
OK, so next question is from Scott. He said, my
husband works for IBEW.
I, I picked this because I, I like IBEW. It's
the International Brotherhood of Electrical Workers.
Suze (16:53):
Because of your uncle...
KT (16:55):
And my grandpa, they were all electricians.
The union provides legal service benefits, and they're in the
process of preparing a will, Suze.
I know you are pro revocable trust, but one of
the advisers said that a law was passed last year
that we can do a transfer on death deed with
our home to our two children instead. Can you please
(17:19):
tell me the pros and cons of both so I
can make a better informed decision?
Suze (17:24):
The
only pro of it.
If you never get sick, if you never become incapacitated
and everything, and then you die and obviously you own
it in joint tenancy with right of survivorship to your spouse,
that at that point when the spouse dies, it goes
to the kids. That's it, no probate, simple.
(17:45):
But life isn't simple, my friend. A transfer on death
deed doesn't help you. All of a sudden you own
this home, you and your husband, and now one of
you became incapacitated. You had a stroke. You had a
car accident, and you needed to sell the house.
(18:07):
But you own it in joint tenancy with right of survivorship.
The question is, if your spouse is incapacitated, can you
sell the house? And the answer to that question is no,
you cannot because it takes two signatures on that deed
to sell the house. And since your spouse now is incapacitated,
(18:30):
you're going to have to go down to probate court.
You're going to get a conservatorship assigned to him. That's
going to cost you money.
And from that point on, every year you have to
check back with the court to make sure that what
you're doing with his half of the money,
it is legit.
A transfer on death deed doesn't help you in any way.
(18:53):
Same thing as a will, a will, obviously you have
to pay probate, but it doesn't help you in case
of the what ifs of life. It doesn't help you
if you need to sign checks for your spouse or
do all kinds of things.
Therefore, I would go to musthadocs.com. It'll cost you $99
(19:15):
and you can get $2500 worth of state of the
art documents good in every single state. I would check
it out. Not only do you get a will and
a trust, you get a durable power of attorney for
health care and an advance directive and a financial power
of attorney.
So while it's true that they're giving him this thing,
(19:36):
they're preparing a will which is fabulous.
I will always tell you a will is not enough.
And therefore I will believe it to the day that
I die cause I've seen it too many times. What happens?
KT (19:51):
OK, OK. Next is from KP, she said, Suze, I'm
retiring later this year. Me and my 90 year old
mom want to move out of state to be closer
to my daughter. We plan to live together in our
new home. We're trying to
figure out who should pay for our new home and
how to hold the title. I currently own my home
(20:14):
outright and would like to use it as a rental
when we move. My mom is very financially secure, has
enough extra cash to easily purchase our new home outright.
I am her only living child and sole beneficiary.
My question, would it make more sense for her to
buy our new home in trust so that I would
(20:37):
inherit it when she passes? Should she give me the
funds or some of the funds so I can purchase
the house in my own name, or should I just
sell my current home and buy our new home myself?
I don't want a mortgage, and the only way I
can pay for our new home outright is if I
sell my current home.
(20:59):
My current house will rent for about 4000 a month.
Please help.
Um, KP sounds like she and her mom absolutely love
each other, and what I think that you need to
do is help her decide what's the best way to, to do this.
Suze (21:13):
Oh, this one's simple, KT, so simple. Listen, if mommy
has the money and she doesn't care, let mommy pay
for it outright, obviously in a living revocable trust with
you as the successor beneficiary. She is the primary beneficiary.
That it's held in trust for her benefit while she's alive,
your benefit after she has died. The reason you want
(21:37):
to do that is for a few reasons, truthfully. Let's
say you buy it and it's $500,000. Let's just say
that's what it is. And then all of a sudden
it goes to 600,000, 700,000, 800,000, and then mama dies.
Now it goes to you. You get a step up
in cost basis on that house as if you had
(21:59):
purchased it for $800,000. Then when you turn around and
sell it, that's your cost basis plus you get $250,000
exemption as well. So mamma should absolutely do it in
her name, a living revocable trust with you and her beneficiaries.
(22:20):
All right.
In terms of selling your home, listen, if you have
what it takes to be a landlord, which is a lot,
just so you know, right, then keep your house and
rent it out, but make sure you do the math
on it. What would you get for that house after
taxes and if invested at like 4%, how much would
(22:42):
that come out to be every single year?
And maybe you never know, you get more by selling
it and investing it that way, or the equal amount
as if you're getting it when you are renting it.
So just check it out and then you'll know which
one you should do.
KT (23:00):
Yeah, plus being a landlord out of state could be
a little tricky, yeah, complicated.
Suze (23:06):
Unless she has good tenants. All right, OK,
KT (23:08):
so next question is from Monina. I like that name Monina.
Suze (23:12):
You like every name.
KT (23:13):
No, this
is a great name Monina.
It's me again.
It's Monina again. I've written to you before and you
actually replied to my email about paying off my mortgage
with my savings.
Suze (23:27):
I do answer you personally every once in a while.
KT (23:30):
She said. I followed your advice and my home condo
is paid off. I am proud of that, but I'm
a little anxious about my savings. I'm slowly building my
emergency fund currently at 6 months
working towards 12 or more, what is a person to
do next once you've funded your revocable living trust, maxed
(23:50):
your 401k Roth contribution, received the max matching from my employer,
built your emergency fund, and carry no debt, but want
to continue to maximize my retirement fund.
Do I just wait till I'm 59 and a half years old
to convert? Is there no way around the pro rata rule?
(24:11):
I've enjoyed your Roth Quizzy Sunday so much. So there
you go, Monina.
Suze (24:17):
Monina, listen to me.
KT (24:18):
She sounds like she's doing great.
Suze (24:20):
It's so funny that so many of you write with
this particular question where you feel like, hey, if you
can't contribute to this retirement account or that retirement account,
you have no other way to invest.
And the truth of the matter is, the majority of
our money, it's not in retirement accounts, they're in investment
(24:43):
accounts where you're buying stock and buying bonds and buying
this and buying that and it's fabulous. So you just
simply start a regular account at any discount brokerage firm
that you like.
And when you buy something and let's say you buy
an ETF and you're going to keep it for a
(25:04):
long time while the money's in there, you're not paying
taxes on it, so it will grow and it will
grow and grow just like a retirement account, but in
an investment account, when you do sell it, if it's
after one year of holding it, you only pay capital gains.
In a pre-tax IRA you're gonna pay ordinary income tax.
(25:27):
I can actually make a case that an investment account
in the long run might even be better than a
pre-tax IRA, just so you know. All right.
KT (25:38):
OK. Last question, Suze, from Christian. Dear Suze and KT,
thank you for everything you do. I'm trying to build out.
Suze (25:45):
KT, when you read these and they say thank you
and they love us, how does it make you feel?
KT (25:51):
Great.
Especially when they really, really love my contribution.
Suze (25:56):
Of course,
of course. Well, what was wrong with me? Of course. All right.
KT (26:01):
Thank you for everything you do. I'm trying to build
out a piece of my portfolio that is focused solely
on dividends with the hope of covering my main living
expenses at some point. This is why I picked this one.
My friend sent me an article about Aristocrat and King stocks.
(26:21):
I don't have a clue what those are, Suze. That's
why I picked this question. I am unsure of where
to start. Would you focus on dividend Aristocrat or King stocks?
There are also dividend Aristocrat ETFs. So there you go.
She's 42. She has one year of emergency savings, no debt,
and 350,000 in retirement accounts.
(26:44):
So tell me what Aristocrat and King stocks are.
Suze (26:48):
An Aristocrat...
KT (26:49):
Sounds very regal.
Suze (26:50):
...is a stock that has raised its dividend for 25
years in a row. A King is a stock that
has raised its dividend for 50 years in a row.
If I were going to be investing at this point
in time between one or the other, I would be
(27:14):
investing in the Aristocrats because I just think you'll get
a little bit higher dividend and possibly some more growth
than you would from the Kings, but either way it's fine.
There are dividend Aristocrat ETFs, one of them that I
have recommended on this podcast for years now.
Symbol is NOBL. It's about $102 a share, and it's
(27:40):
the Standard and Poor's Pro Shares 500 dividend Aristocrats ETF.
So all the stocks in there are Aristocrats. So that's
one of them. There are many of them. Just do
a search and they'll all come up, but that's the
one that I've been investing in,
if you want conservative, I like other dividend stocks that
(28:02):
are not Aristocrats that are paying a higher dividend, but
that's not your question. Although Pfizer would be the answer
to that. Anyway, all right, everybody, that brings us to
the end of today's. You don't get a quizzy because
you had 3 or 4.
KT (28:17):
I did, yeah, I got them right,
Suze (28:20):
Ready. This is a quizzy ready, KT.
If people want to go and see and play the
can I afford a game that we have on my
YouTube channel? What is the URL?
Look at her little face.
KT (28:34):
The URL is go to youtube.com/suzeorman
ding ding ding ding ding
Suze (28:41):
ding ding ding
KT (28:42):
Because I love playing those games. They're fun.
Suze (28:46):
It's a fun thing.
KT (28:47):
Yeah, tell us if you like them. They're fun.
Suze (28:49):
So that's again YouTube, Y O U T U.com/ Suze
S U Z E Orman.
Go on, do it. They're free and then there's only
a few of them, right? And then post on the
board on the Women and Money app if you liked
it or not, because you never know when I'll actually
do one where you can call in and that little
(29:11):
emoji that you're going to see will tell you if
you're approved or denied.
In real time, so let me know. All right, everybody,
until Sunday. There's only one thing we want you to
remember when it comes to your money. What is it,
my little sweet?
KT (29:26):
People first, then money, then things.
Suze (29:29):
Yes, indeed. So all of you stay safe. Bye bye now.
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