← Suze Orman's Women & Money (And Everyone Smart Enough To Listen)
Suze Orman's Women & Money (And Everyone Smart Enough To Listen)
Ask KT & Suze Anything: A Roth Quizzy For You
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We are strong, we are wise we will not apologize we are here, we will thrive Together we will rise we're the little bit of faith and everything it takes. We are strong, we are wise Together we will rise.
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March 6, 2025. Welcome, everybody, to the Women and Money podcast, as well as everybody smart enough to listen. Now, I know, I know today is supposed to be Ask KT and Susie anything, but I happen to be in Florida. KT is on the island. So I thought, I know. You know how I was supposed to give KT a quiz on Roth IRAs and all of that. She wasn't going to have it. She was like, I'm not doing that, Susie. So I'm like, okay. And I couldn't get her to do it. That's life. All right. However, I thought, well, if KT doesn't want to do it, why don't I, since she's not with me today, why don't I give you the. The quiz that I was going to give Katie? Because I have had 18 questions just sitting here waiting until she was ready to do this. So why don't you get out some paper, pencil, whatever it is that you need and let's see how many of these that you can get. Right? So this really is now your Roth quizzy time. Are you ready? I'm going to start out easy for you. Roth IRA contributions are made with pre tax dollars. Yes or no? Did you answer? If you answered no, you are correct. Roth IRA contributions are made with aff your tax dollars. And the reason is that's why it gets to be in there and grow essentially tax free if you meet certain qualifications. Pre tax dollars from traditional IRAs. Got that everybody? All right, next question. You can still contribute to a Roth ira for the 2024 tax year until April 15, 2025. Yes or no? Or it could be true or false. Up to you. Have you answered? You can still contribute to a Roth IRA for the 2024 tax year until April 15, 2025. That is is true. You can. You can also do it with a traditional. Just so you know, next, Roth IRAs or Roth 401ks. And by the way, when I say a Roth 401k or I mention a 401k, I also mean a TSP or 403b. All employer qualified plans. So a Roth IRA or a Roth 401k currently require RMDs by April 1st after the year the owner turns 73. So whether it's a Roth IRA or a Roth 401K are RMDs required by April 1st, after the owner turned 73. Yes or no? Why did you answer that is false? Because RMDs are never required from a Roth account of any kind. That is why I love them so much. A pre tax retirement account or a traditional additional IRA, 401k or whatever, you have to start taking RMDs in most cases out of your accounts by April 1st after the year you turn currently 73. In a few years, that goes up to 75. However, in a Roth of any kind now RMDs are not required. Next, if you withdraw contributions, not your earnings, but just contributions from your Roth ira and you can do it at any time, is it always tax and penalty free? Yes or no? Think about it. The answer to that is yes. The reason why I love Roth iras is more than any retirement account out there, more than a Roth 401K, anything is because any money that you have originally contributed, you can take out anytime you want. No limitation on age or how long the account has been open. It's your money. You can take it out. That's not true for the earnings of the account, but it's true for the contributions. Now, the earnings, however, in a Roth IRA grow tax free. But withdrawal of those earnings are always subject to income tax. Yes or no. So while they're in the account, everybody, they're really kind of growing. Tax deferred, everything. This is the earnings. But withdrawal of those earnings are always. The key word is always subject to income tax. And the answer to that question is no. False. As long as the account has been open for at least five years and you are at least 59 and a half years of age, you're not going to have to pay income tax on any of the earnings. So truthfully, if you have a Roth IRA that has been open for at least five years, you're 59 and a half or older, you can take every penny out of that account, absolutely tax free. Next, you must have no pre tax funds in any traditional IRA account. That includes a simple ira, a SEP ira, a traditional ira. Like I just said, to avoid tax complications when using the backdoor Roth strategy. Remember everybody, I'll let you think about that for a second. There are modified adjusted gross income limits for you to be able to have a Roth IRA IRA if you are single, you cannot make more than $150,000 a year of modified adjusted gross income. To put the full max in a Roth, that amount goes down. And after $165,000 a year, modified adjusted Gross income, you do not qualify for a Roth at all. If you're married filing jointly, Those numbers are 236. Goes away totally at 246. All right? You make more than that. So you want to do a backdoor Roth. And to do a backdoor Roth, you simply open up a non deductible ira, you do not take it off your taxes and you convert it to a Roth ira because you can convert any amount of money you want and there are no income limitations on conversion. All right? Therefore, to avoid tax complications, when you're using a backdoor Roth strategy, you must have no pre tax funds in any traditional pre tax retirement account. True or false? That everybody is true. Because if you have, let's say a traditional ira, maybe you have a SEP ira, maybe you have an IRA rollover and you do a backdoor Roth, like I just said, then you're going to have to pay taxes when you convert according to a pro rata formula, which I have explained in previous podcasts. But if you happen to have a pre tax any kind of retirement account, don't do a backdoor Roth. All right everybody, just that simple. How you doing on these? Are you doing okay? All right. I still wonder how KT would have done anyway. Next, the pro rata rule does not apply when converting a pre tax IRA to a Roth ira. All right. Does it? Does it not? No, it does not apply. That is true. Doesn't matter how many retirement accounts you have out there. When you are converting from a pre tax account to a Roth, you're going to have to pay taxes on the entire amount you're converting. So the pro rata rule does not apply because you're already going to pay 100% tax on everything that you are converting. If you convert a traditional IRA to a Roth ira, but the Roth IRA has already been open for over five years, the converted funds fall under the time frame of the Roth ira. So in other words, when you convert from a pre tax to a Roth IRA that has been open for over five years, remember the five year rule everybody. If it's been opened for over those five years, do the converted funds take on the time of those five years? Yes or no. And the answer to that is no, they do not converted funds. When you are converting from a pre tax retirement account to a after tax retirement account, traditional to Roth, then the amount of money that you are converting starts the clock for those funds all over again. So if you convert three times, each one of those conversions are going to have their own Five year clock. You have to know that everybody. Now this one's a little tricky, but if you listened to a podcast that I did just a week or so ago on a Sunday, Susie School, which was about what happens, what do you do if you get laid off or fired, you should know this. You have a Roth 401K and you've had it for 10 years now, past the five year limit. You've had it for 10 years and now you are rolling it over to a brand new Roth ira, one that you're going to open for the very first time. Does the time clock of the Roth 401k follow you to the Roth IRA? So in essence now, is that money that's In a Roth IRA, has it been deemed to have been open for 10 years even though you just opened the Roth IRA? Yes or no. And the answer to that is no. Listen closely everybody. When you go from a Roth 401K, which is a certain type of retirement account, and you roll it to a Roth ira, now you are changing the type of retirement account, even though they're both tax free, from an employer sponsored one at work, to your own individual one. So it's brand new for you. It takes on the time clock of how many years the Roth has been opened. The Roth IRA, not the Roth 401. So if you are just now opening a Roth IRA, when you do it, the time clock will start ticking and you will have to leave it there for five years. If your Roth IRA has already been open for five years or longer. Now it takes on that five years of the Roth IRA, but the 10 years of the Roth 401 mean absolutely nothing when you are rolling it to a Roth IRA. However, if you leave that Roth 401 at your place of employment, so therefore it has been open longer than five years and you are 59 and a half years of age or older, you can take it all out without any taxes or penalties. So you just decide. But my suggestion to all of you is, can you just all open up a Roth IRA right now? If you don't have one, just open it with a dollar and that starts the time clock ticking. So for all the money then that you might have in a Roth 401k, Roth tsp, Roth 403. If you roll it at that point into the Roth ira, whenever you decide to do so, it takes on the time of how long that Roth IRA has been open. All right, next, this is a trick one, so listen closely. The IRS aggregation rules require you to consider all your Roth IRAs as one account when calculating your RMDs. True or false? The answer to that is false. Did I not say to you in one of the previous questions that roths never have RMDs? That was a trick question. So what you do need to know however is if it was a traditional IRA. Traditional whatever, you may have, even 401 anything. The IRS will absolutely aggregate all your pre tax accounts to determine how much you should pay in RMDs. Again, Roths never pay RMDs, which is why I love them so much. Ready withdrawals of only your contributions in a Roth IRA are always tax free and penalty free, regardless of your age and how long the account has been open. Think about it. A little bit ago I answered that, I explained how a Roth works. So this is if you only want to withdraw your contributions, can you always do so tax free and penalty free, regardless of your age and how long the account has been open? Can you? The answer is yes you can. That is again, I'm driving this point home because that is again why I love Roth IRA so much. Next. I'm 60 years of age and I opened a Roth IRA three years ago. If I take out my earnings, I'm not talking about contributions now. If I take out my earnings, remember the five year rule, everybody will. I have to pay taxes and the 10% penalty on my earnings. Yes or no? The answer to that is a little tricky. Right? You will have to pay taxes on your earnings, but you're not going to have to pay the 10% penalty because you are over 59 and a half years of age. So what I want you to take away from that question is once you turn 59 and a half years of age, don't ever again. When withdrawing money from a retirement account, worry about the 10% penalty. It doesn't matter what the rules say. Whatever you are 59 and a half years of age or older and therefore the 10% penalty does not apply. However, the five year rule will apply for earnings. So the account has got to have been opened for at least five years for you to also withdraw the earnings tax free. Even if you deposited everything two years ago. If the account had been open for at least five years, it qualifies. Open your Roth IRA today. Got that everybody? Okay, we're almost there. In a non eligible designated beneficiary inherited Roth IRA, the account has to be wiped clean in 10 years. Do you all remember the difference between an eligible designated beneficiary and a non eligible designated beneficiary? When it comes to retirement accounts, almost all of you are going to be non eligible designated beneficiaries. Unless, of course, you are a spouse, you are a minor child until you turn the age of majority, you're 10 years younger than the owner of the IRA, or you are disabled. That makes you an eligible designated beneficiary. And essentially you have the same rights as if you were the owner. Really. However, a non eligible designated beneficiary, a child, most of you are governed by certain laws, but this is a Roth IRA I'm talking about here. So in a non eligible designated beneficiary, inherited Roth IRA, does the account have to be wiped clean in 10 years? And the answer to that is yes, it does. They are not going to allow you to continue to accumulate growth tax free. Now listen to me. If this was a traditional ira, it has to be wiped clean as an inherited traditional IRA within 10 years as well. But because it will be taxable to you in that situation, you want to start taking it out year by year by year. So in the 10th year, it's almost all wiped out. In a Roth, you would let it accumulate for all 10 years and grow and grow and grow, because when you take it out, it's all going to be tax free. So you would be taking advantage of the tax free status of that account. All right, little trick one here. I have $200,000 in my 401 at work and I want to convert it all at one time to a Roth 401k. Is this smart? I still have at least 20 years till I need this money. Is this a smart thing to do everybody? Yes or no? It is not a smart thing to do. And the key there was all at once. If this person converted all $200,000 at once, all $200,000 is going to be taxable. So why not convert maybe 20,000 one year, maybe 20,000 another. Maybe take 10 years to get it in there, or whatever your tax person says you can convert without you really screwing up your taxes. All right, next, if I have a Roth 401k that I max out every year, can I also max out a Roth ira? Can you have. Really this question is asking, can you have a Roth 401k at work? Can you have a Roth IRA as well? Could you even have a traditional 401k at work and a traditional IRA if you wanted, or any combination thereof, can you do that and max them all out? Did you write your answer down? The answer is yes, you can max out a Roth 401K. You can also max out a Roth IRA. Next, can I open multiple Roth IRAs in a single year and fully fund each one with $7,000 since I'm under the age of 50. Remember the maximum amount you can put in a Roth or traditional if you're under 50 is 7,000 a year or 8,000 if you're 50 and older. So can you open up three or four Roth IRAs in one year and put $7,000 in each? Yes or no. And the answer to that is no, you cannot. You can open up multiple Roth IRAs however, but you can't max out each one. The most you could do is put maybe 2000 in one, 3000 in another 1000 in another another 1000. So it all adds up to $7000. But that's the max. But it would make no sense for you to have multiple accounts like that. None if you ask me. Last question is a very hard question. Is there any reason that you should have a traditional IRA or a traditional 401k instead of a Roth in Susie's opinion? And the answer to that is no. There is absolutely in my opinion not one reason in the world you would ever want to do a pre tax retirement account. For those of you who don't qualify for a Roth IRA income wise, there are no income limitations if you do a Roth at work. So if you are offered a Roth of any kind at work you should be taking it. You also can always do a backdoor Roth ira. Just don't have any pre taxed or really other retirement accounts because then you'll have to do the pro rata rule. I can go on and on forever about why a Roth IRA or Roth 401, 403 or TSP. It should be mandatory especially if you're not making a lot of money. And if you listen to a few Sundays ago podcast which is about what do you do when you lose a job? It would explain to you why you would have made a big mistake by opening a pre tax retirement account. Remember everybody, you never know what can happen and when it's going to happen. Now I would love for all of you to post on the Women and Money community app by going to Apple Apps or Google Play. I want you to post under today's podcast. How many did you get right out of all of these? How many? Tell me how you did. Tell me if this was helpful and hopefully KT will listen to this because I got news. There is no way she is going to do a quizzy and that is her prerogative. So until Sunday. There's only one thing that I want you to remember when it comes to your money, and it is this. People first, then money, then things. And the best retirement account in the world is a Roth of any kind. Now, you stay safe.
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We are strong, we are wise we will not apologize we are here we will thrive Together we will rise we're the little bit of faith and everything it takes we are strong, we are wise Together we will rise.