Ask KT & Suze Anything: Don’t Make the Biggest Mistake You Can Make With IRA Conversions

Summary

Podcast Summary: Suze Orman's Women & Money (And Everyone Smart Enough To Listen) Episode: Ask KT & Suze Anything: Don’t Make the Biggest Mistake You Can Make With IRA Conversions
Release Date: January 9, 2025
Host: Suze Orman Media

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Introduction: Navigating Financial Security

The episode kicks off with Suze Orman emphasizing the foundational role of an emergency savings account in achieving financial security. She encourages listeners to participate in the Ultimate Opportunity savings account at Alliant Credit Union, underlining the importance of being prepared for unforeseen circumstances.

Reflecting on Personal Experiences: The Oakland Fire of 1991

[02:03] Suze Orman:
“I was still seeing clients at my office at the Suze Orman Financial Group...number one, but number two, the hills for as far as you could see were blackened ash.”

Suze shares her harrowing experience during the Oakland fires of 1991, where 3,000 homes were destroyed. This personal account underscores the critical need for comprehensive fire insurance. She announces an upcoming “Susie School” dedicated to educating listeners about fire insurance, highlighting common pitfalls and essential coverage details.

Investment Strategies: Embracing Market Volatility

Suze delves into investment strategies, particularly advocating for dollar cost averaging. She discusses her insights on Bitcoin's volatility, predicting its price fluctuations and advising investors to consistently invest small amounts regardless of market conditions.

[05:00] Suze Orman:
"No money should be invested in the stock market that you don't have at least five years that you do not need to touch it."

She stresses the importance of having a long-term perspective, especially during market downturns, and shares her approach to handling volatile stocks like IONQ and Palantir by continuing to invest during dips.

Listener Questions and Expert Advice

1. Evaluating Whole Life Insurance for Children

Listener: Vanessa
Question: Should she continue paying premiums on a $100,000 whole life insurance policy for her daughter or redirect funds into a Roth IRA?

[12:21] Suze Orman:
"I would say it was a mistake...you could probably help her more in life than in death by taking that $75 a month and having invested it over all those years."

Suze critiques the rationale behind purchasing whole life insurance for a child, advocating instead for investing the premiums into a Roth IRA. She outlines the potential growth of such investments over time, emphasizing the long-term financial benefits over the uncertain utility of life insurance.

2. IRA Conversion Without Using Liquid Savings

Listener: Gina
Question: Can she convert her traditional IRA to a Roth IRA without using liquid savings to pay the taxes?

[19:54] Suze Orman:
"Yeah, if you want to make the biggest mistake in your life, but go on."

Suze firmly advises against withholding funds from the IRA conversion for tax purposes, labeling it a significant financial error. She explains that any amount used to cover taxes during a conversion is treated as a distribution, which incurs taxes and potential penalties, thereby undermining the benefits of the conversion.

3. Managing RMDs After Inheriting an IRA

Listener: Elle
Question: Is she required to calculate Required Minimum Distributions (RMDs) separately for IRA portions with Fidelity and Vanguard?

[21:46] Suze Orman:
"You do not have to split it equally... just make sure you do it before December 31st of this year."

Suze clarifies that inherited IRA holders can calculate their RMDs based on the combined ending balances of all inherited accounts. This allows for flexibility in withdrawing the required amounts without the necessity of treating each account separately.

4. Tax Filing Requirements for Dependents in Care Facilities

Listener: Christine
Question: Does her 83-year-old mother, residing in a state-dependent care facility with $23,000 in Social Security benefits and under $2,000 in assets, need to file taxes?

[23:01] Suze Orman:
"No, for 2024, you are not required to file a tax return because her income did not equal or exceed $16,550."

Suze addresses the misconception that all Social Security benefits are taxable. She confirms that Christine's mother does not need to file a tax return, as her income from Social Security alone does not meet the threshold requiring taxation.

5. Understanding the Social Security Marriage Penalty

Listener: William
Question: Is there a "marriage penalty" for Social Security benefits, and should couples consider divorce to maximize their benefits?

[24:18] Suze Orman:
"William, I just want to make sure that you know that you are 1000% wrong."

Suze debunks William's misconception about a Social Security marriage penalty. She explains that there is no cap on the benefits that married couples can collectively receive. Each spouse can claim their own maximum benefits independently, dispelling the notion that marriage inherently limits Social Security income.

Conclusion: Empowering Financial Independence

As the episode winds down, Suze reinforces the episode's key themes:

• Financial Preparedness:
  “You are to make your time worth your time. And you are to make your money make more money.”

• Investment Discipline:
  Continuous investing, especially during market lows, coupled with a long-term strategy, is essential for financial growth and security.

• Informed Decision-Making:
  Understanding the nuances of financial products and tax implications can prevent costly mistakes and optimize financial outcomes.

Suze encourages listeners to stay proactive in their financial planning, leveraging expert advice and trusted resources to navigate complex financial decisions confidently.

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Notable Quotes:

• Suze Orman on Investment Discipline [05:00]:
  "No money should be invested in the stock market that you don't have at least five years that you do not need to touch it."

• Suze Orman on Social Security Misconceptions [24:18]:
  "William, I just want to make sure that you know that you are 1000% wrong."

• Suze Orman on Financial Preparedness [26:01]:
  “You are to make your time worth your time. And you are to make your money make more money.”

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This episode of Women & Money provides invaluable insights into financial planning, investment strategies, and tax considerations, all delivered with Suze Orman's signature clarity and expertise. Whether you're navigating IRA conversions, managing life insurance policies, or deciphering Social Security benefits, Suze and KT offer actionable advice to empower listeners in their financial journeys.

Transcript

[Susie Orman]

Hi, everybody. Suzio here. Now, what is the goal of money? The goal of money is for you to be secure. And there is no better way for you to be secure than having an emergency savings account. It is essential for your financial foundation. So all of you should be participating in the Ultimate Opportunity savings account at Alliant Credit Union. Go to myalliant.com to find out more. And be secure.

[KT]

All right, Susie.

[Susie Orman]

Kt, are you ready for today's podcast?

[KT]

Yeah, Robert, of course we're ready.

[Susie Orman]

Cuz we are unstoppable.

[KT]

Yeah.

[Susie Orman]

Yeah, baby.

[Unknown]

I put my armor on. Show you how strong I am. I put my armor on. I'll show you that I am. I'm unstoppable. I'm a breaks. I'm invincible. Yeah. I win every single game. I'm so powerful, I don't need batteries to play. I'm so confident.

[Susie Orman]

January 9, 2025. Welcome everybody, to the Women in Money podcast, as well as everybody smart enough to listen. Today is Ask Susie and KT anything. Now, before we begin, we both have to say, right, KT.

[KT]

Oh, Susie and I, for the past 24 hours have been glued to the news, speaking to all of our friends in California and our hearts go out to everyone in la and we just can't imagine what they're going through. But when we see the photos, I can't stop crying.

[Susie Orman]

Yeah, actually, though, I can, I'm sorry to say, I can imagine what they are going through.

[KT]

Oh, you. You lived it. I forgot.

[Susie Orman]

Yeah. 1991 in the Oakland fires, where 3,000 homes burnt down and we got a knock on the door and I was told to evacuate and so on and so forth and so. Oh, you bet. I can imagine, thank God for me, anyway, that the fire stopped a very short way from my house. But I do know on some level what they were going through. So to that end, this Sunday, I'm going to do an entire Susie School on fire insurance.

[KT]

Oh, that's great.

[Susie Orman]

Because in 1991, I was still seeing clients at my office at the Suze Orman Financial Group. And I had the corner glass office. And as you would look out the window, you could see the fire as it was happening, number one. But number two, the hills for as far as you could see were blackened ash. There was no green whatsoever. As you drove through the fire area, which I had to do every day, there was not one structure standing, nothing, I mean, I'm telling you, just ash. And you would see people standing there going through their ash, as I did with many friends to try to find mementos and things like that. However, I saw so many people came to me to decipher their insurance policy, what they should do, what was covered, what was not. So on some level, I became an expert on it. So I think it's important at this time that the way that we really get educated, not just about stocks and bonds and all these things, but it's important to be educated on what does your home insurance cover and what does it not. So that will be Susie School on Sunday. I do just want to say one other thing before we begin, which is last Sunday I gave a list of many, many stocks and ETFs that I would be dollar cost averaging into. I also told you two things that this was going to be the year of severe ups and severe downs, not just with the entire indexes, but with individual stocks as well. I also told you that I thought bitcoin could easily go to 125, but before it went there, it would go up and it would go down. And it would not surprise me if it went down to the low 90s or 87,000 right in there. And after that podcast, it zoomed up to almost 102,000 of Bitcoin. And I was just praying it was like, please don't get suckered in. Did you listen to me? It's going to go up, it's going to go down, but I think it's going to go down before it goes way up. So the key to everything, two things here is dollar cost averaging in little, little amounts. Number one and number two, somebody wrote me and they said, susie, I know I'm supposed to be invested in the plan that maybe Keith's going to come out with for at least five years. What if I only have. I want you to all understand something that I'm about to say right now. No money that you have invested in the stock market. It doesn't matter what plan, whose plan, your plan. However, no money should be invested in the stock market that you don't have at least five years that you do not need to touch it. And again, you've heard me say that over and over again. And the reason is, is that when the markets go down, it could take easily five years for it to recover. So you need five years or longer. How many times have you heard me say that? I do have to just comment on one stock that was mentioned on Sunday, last Sunday, I O N Q, which the other day it was down 50%. Now, a lot of you probably are freaked if you bought it but probably you, only if you follow me, bought a little bit of it and I went in the other day and I bought a lot of it when it was down 50%. So that's the type of stock I just have to say that is long term and you dollar cost average into it. As I did tell you on Sunday, take advantage of down days, especially in some of these stocks. Don't let it scare you when they go down like that. Just simply buy a little more and let's see what happens.

[KT]

Yeah, she did that. Everyone, I had lunch. I said, susie, lunch is ready. Kt, I can't join you. Why? She said, a stock just went down 50%. I'm taking advantage. I said, buy it, girl.

[Susie Orman]

And I also bought it for colo. Anyway, there you go. So you have to have like this fearless attitude for this year when investing in markets and faith, and faith in yourself that you can do this because you know God's not going to save us that way. Kt. It's our own actions that we take. But things go up, things go down. When you know you're invested in good quality stocks, you take advantage of it. The same thing with Palantir. It's down in the 60s or it was down from 80. Things go up, things go down. And when they go down, they give you another chance to buy even more. Which is why dollar cost averaging and what you're soon going to learn about value cost averaging is the way to go. All right, kt, that's all the time for the Ask Susie and KT anything. All right, girlfriend, what do you got for us?

[KT]

So, Susie, this is my first email which I think is very relevant, says, Hi Susie and KT. My name is Will, I'm 35, living in Detroit, Michigan. I wanted to tell you that I'm so grateful to both of you. I was able to max out my Roth 401k and increase my net worth by $70,000 last year. And that's partially because of your guidance. I also think you'll be proud to know that I bought the must have documents for my three best friends for Christmas. Yay. Good job, William or Will. Working as the director of nursing at a large nursing home for the past five years, my single biggest challenge is that most people do not plan for every eventuality, including a rapid decline or becoming incapacitated. Especially for folks that are incapacitated. I see so much time and money wasted at end of life seeking legal guardianship when decision making ability could have been easily established prior to incapacitation with the must have docs, they were so easy to get through and if everyone knew about them, my job would be much easier. Well, Will, first of all, he's great to give those as gifts. We think they're great Christmas gifts or anytime gifts.

[Susie Orman]

Yeah. But Will, here's what I want everybody to know on behalf of Will, and especially of times where you have to expect the unexpected, which every single person in LA is experiencing right now. The difference is you know you're going to get older, hopefully, you know that you may get sick, you know that things happen in life. And just like you take time to ensure your home or whatever it may be, you have to make sure that you have all your paperwork in place so that you don't have to waste money. Remember this year's theme, making your money make more money. And one of the ways that you make your money make more money is you make sure that you have all the documents in place today to protect your tomorrows. That is why the must have documents were created. And you can get the must have documents, everybody. They are the will, the trust, the advance directive and durable power of attorney for health care and so on and so forth. And all you have to do is go to must have docs.com they're $99 for $2,500 worth of state of the art documents. Good. In all 50 states. You can share them once you get them. So when you get them, you'll get an activation code. You can share it with your family members. And every time you want to make an update, you can do so absolutely free. And once they're updated, you can get that update. When the actual program is updated, you get that for free. So I know this sounds like a commercial, but it most certainly is. But those documents are put out by Hay House and that is who does those documents. I'm the educator of that now. But that's who is selling them to you. So therefore go to must have do docs.com and really everybody, you should take advantage of it. So I'm spending time with this right now on this podcast because of what happened not only in the LA fires, because I'm sure there are people that will have been injured or killed in them as well as to honor Will and what Will asked us to do. Wait, don't you think it's funny? Kt, his name is Will.

[KT]

Don't go there.

[Susie Orman]

But Will, Will wants all of you to have a will and a trust. You see how that works? All right, go on.

[KT]

That's a Susieism.

[Susie Orman]

All Right.

[KT]

All right. Okay. Next email is from Vanessa. Hi, Susie. On September 16, 2017, when our daughter was 10 years old, we signed up for a $100,000 whole life insurance policy that will be fully paid off after paying monthly premiums for 20 years. So it was a 20 year pay whole life. We will not have to make any additional premium payments after the 20 years. After seven and a half years of paying about $75 a month, we've paid in $6,750 towards the policy. The value is $3,353. Okay, our daughter's now 17 years old and thank God she is healthy. Could you please let us know if after premium payments, would our daughter be better off at this stage if we continue making the payments, or should we absorb the loss of money paid so far, stop making additional premium payments and instead invest the remaining money for her in a standard and poor 500 ETF like Vu? What's your thought, Susie?

[Susie Orman]

Tell everybody what my face looks. Come on.

[KT]

She's impressed. Impressed that I did such a great read.

[Susie Orman]

And tell them what my posture is right now.

[KT]

Her posture is. You've got to be kidding me.

[Susie Orman]

No, the posture. What? My head is on my hand and I'm leaning over. Like really?

[KT]

Really. Listen, everybody, you send anything in about whole Life, just remember Whole Life, not Whole Foods, Whole Life.

[Susie Orman]

There you go. All right, my dear Vanessa, listen to me. First of all, I have to ask you, why did you buy life insurance on a 10 year old child? Why? Who sold you that? You only buy life insurance, in my opinion, when somebody is financially dependent upon and if you were to die, they would suffer a loss. If your daughter were to die, you would suffer the biggest loss of your life. Obviously you might not even want that hundred thousand dollars at that point in time because I've seen that happen where, you know, the parents just give it all away because they can't believe that their child died. But the question becomes, did you do it so that your daughter, when she got older, would have a paid up policy of $100,000? Is that why you did it? I would say to you it was a mistake. I just think it is a mistake. And let me just tell you why. Obviously, at $75 a month, you say you've already paid in $6,750 and you still have 12 and a half years. So by the time you're done with all of this, you still owe $11,250 or you will have paid a total of $18,000 over 20 years for your daughter to have $100,000 life insurance policy. And is that something that you think she really needs? Don't you think that you could probably help her more in life than in death, so to speak, by taking that $75 a month and having invested it over all those years? Really? So if I were you, you say that you have a policy value of about $3,300. Now, I don't know if you mean that you have a cash value, meaning if you were to stop the policy, that you would get back $3,300 or not, or if that's just value is worth. And if you were to cash it out, you would get a whole lot less. But just let's make the assumption that the $3,353 is what you would get back if you stopped the policy. If you took that $3,300 right now and you simply invested it. And let's say your daughter now is 17 and a half years of age because you've been doing it for seven and a half years and she was 10 years of age when you. And let's say she has a little bit of a side job or whatever it may be, and she could put that $3,300 into a Roth IRA, because maybe she earns $3,300 a year and you were to give her maybe $75 a month to continue to put into that Roth IRA, and she did it for another 12 and a half more years at just an 8% annual average rate of return, approximately per year, she would have about $27,000 in her Roth IRA. And let's just say she never did anything with that money again. She never put another penny in and now she's 50 years of age. Just let's say that's true. At an 8% annual average rate of return, she would have $140,000 in her Roth IRA. At a 10% annual average rate of return, she'd have about $205,000 in her Roth IRA. If she waited till she was 70, can you just imagine she might have 5 or $600,000 at that time, all tax free. But that's money that she could use. That's money that she can access. That hundred thousand dollar life insurance policy doesn't help her at all really while she's alive. Maybe it helps her if she gets married, she has a child, whatever it may be. But she would be far better off buying a term insurance policy and have this money for herself. But she would only buy a term policy if somebody is financially dependent upon her. So therefore. Oh, you bet. I would not continue to do this at all. I would switch that money, if you can, to a Roth for her. If not, hey, just put it then in an investment account for her. Eventually, she'll be able to fund her Roth with that money. But that's what I would do if I were you.

[KT]

Okay, now, Susie, so keeping on track with Roth, one of my favorite topics. This next one's from Gina. She said, hi, KT and Susie. I'm 56 years old, and I want to start converting my traditional IRA to my Roth IRA.

[Susie Orman]

And how old is she? 56.

[KT]

56 at Charles Schwab. But I don't want to use my liquid savings to pay the taxes.

[Susie Orman]

Why not? What's wrong with you?

[KT]

Wait a minute.

[Susie Orman]

Okay.

[KT]

This is what she's asking, and it's a good question, because I wouldn't think you can do this. But here's what she wants to know. When I do the conversion, could I ask Charles Schwab to withhold the amount that I think I would owe for taxes?

[Susie Orman]

Yeah, if you want to make the biggest mistake in your life, but go on.

[KT]

Exactly. Well, Schwab's telling her. Schwab said, of course you can do this, but those funds would be treated as distribution, and you would be taxed and penalized on that.

[Susie Orman]

They are correct.

[KT]

Yeah. Schwab was right. I clarified. I. I didn't want those funds to be sent to me. Rather just hold them for my taxes. She said, it's still treated as a distribution. This is true.

[Susie Orman]

That is true.

[KT]

Well, there you go. Well, you answered her question. Next question is from Elle. She said. I think it's a she. I inherited my father's IRA after his death in 2020. He was taking RMDs. I split the account, and I have a portion with Fidelity and a portion with Vanguard. Do I need to calculate the RMD for each, or can I take it all from one?

[Susie Orman]

All right, let's quickly. Wait, Just let me answer that. All right. Which is L. Even though you split it between the two, all you have to do is take the ending balance of last year, December 31, 2024. Whatever the ending balances of both of those accounts, you add them together. You then have to do your life expectancy divided into that, and you can take whatever that number is from either one. You don't have to split it equally that way. Just make sure you do it before for December 31st of this year.

[KT]

So, Susie, next question is from Christine. She said, hi, KT and Susie. My mom is 83. She's in a state dependent care facility. She's received $23,000 in benefits for Social Security. She has under 2,000 in assets and no income. Does she still need to file taxes? My sister takes care of her finances and asked me. I have no ide. Now, Susie, Christine said if it were a quizzy, she'd say yes.

[Susie Orman]

Do you want this to be your quizzy?

[KT]

Come on.

[Susie Orman]

Come on.

[KT]

No, it's Christine's quizzy. She say yes to kgt.

[Susie Orman]

What is this? Is this is your quizzy.

[KT]

All right. I think that everyone has to file taxes, so I'd say yes too.

[Susie Orman]

Positive.

[KT]

Yeah.

[Susie Orman]

Come on.

[KT]

Doesn't it. I know you have to file, but you don't have to pay. You don't have any money.

[Susie Orman]

No. Let's just say this was for 2024.

[KT]

Okay.

[Susie Orman]

All right. And so for 2024, you are not required to file a tax return because her income did not equal or exceed $16,550.

[KT]

Case 23.

[Susie Orman]

Oh, right. And all she had. No, no. All she had was 23,000 of social Social Security.

[KT]

Okay.

[Susie Orman]

That's why we messed up, Christine. So there you go.

[KT]

So Social Security is not taxable.

[Susie Orman]

All right. You got any others for me?

[KT]

Yeah. So, Susie, you tricked me on that Social Security. So here's another one. This is Social Security marriage penalty. Ready? From William. He said, I wanted to make sure that, you know, if a couple collects Social Security.

[Susie Orman]

So wait, this person is asking if I know versus they want me to.

[KT]

I can tell. You're already gonna. William is probably making a big mistake. Let me read what he wrote.

[Susie Orman]

All right.

[KT]

He said, I want to make sure, you know, if a couple collects Social Security that they limit to monthly maximum to $6138. But if you're divorced, both can collect over that amount. That is why I truly believe that it is a penalty to be married if both spouses retire later in life and both collect benefits. What's William want everyone to do? Get a divorce before they start collecting.

[Susie Orman]

William, where did you.

[KT]

Where did you get that?

[Susie Orman]

From this information firsthand, I can tell you. KT, are we married?

[KT]

Yes.

[Susie Orman]

And KT, between the two of us, are we limited to $6,138 in Social Security?

[KT]

No, we get like 8,000 or so.

[Susie Orman]

Between the two of us. We get a lot. We get about four.

[KT]

We get the max.

[Susie Orman]

Yeah, we get the max. And, you know, right now the max for a 70 year old is, I think, 4636. So, William, if two people are married and they are claiming each their own Social Security, not a spousal benefit, not a divorce benefit, but they're married and they're each claiming their own Social Security, there is no limit because they're married. Wherever you got that, I don't know.

[KT]

I'll do it for you, right?

[Susie Orman]

And so again, if two of you are married this year and you're both 70, you could have $4,636 each if you qualify for the marriage maximum. But, William, I just want to say this. I want to make sure that you know that you are 1000% wrong. All right?

[KT]

I think that's a good one to add on.

[Susie Orman]

Williams, Is that. Was that his name? William, Right. We started with Will.

[KT]

Now we have a William.

[Susie Orman]

And now. Which is like, Will. I am kind of funny, right? And we won't go there. All right, everybody. So until Sunday.

[KT]

Sunday will be good. Listen up. And if you have any friends in California, especially in the. The burning areas, have them listen to this every week if they're able to.

[Susie Orman]

It'll be on here for them. But anyway, we have a new ending, right, kt. So here's what we want you to remember. I'll take them out, my dear. Okay, there's two things I want you to remember. And it's this. You are to make your time worth your time. And you are to make your money. Make more money. And if you do that, oh, you will be unstoppable. There you go. Bye. Bye.

[Unknown]

Cuz I'm invincible say I won every single day Mine's all powerful I don't need batteries to play I'm so confident yeah, I'm unstoppable today Unstoppable today Unstoppable today Unstoppable today I'm unstoppable today.