Suze: March 6, 2025. Welcome everybody to the Women and Money podcast,
Suze: as well as everybody smart enough to listen. Now I know,
Suze: I know today is supposed to be ask KT and
Suze: Suze Anything, but I happen to be in Florida. KT
Suze: is on the island, so I thought, I know...
Suze: You know how I was supposed to give KT a
Suze: quiz on Roth IRAs and all of that. She wasn't
Suze: going to have it. She was like, I'm not doing that, Suze.
Suze: So I'm like, OK, and I couldn't get her to
Suze: do it.
Suze: That's life. All right. However, I thought, well, if KT
Suze: doesn't want to do it, why don't I, since she's
Suze: not with me today, why don't I give you the
Suze: quiz that I was going to give KT, because I
Suze: have had 18 questions just sitting here waiting until she
Suze: was ready to do this. So why don't you get
Suze: out some paper, pencil, whatever it is that you need.
Suze: And let's see how many of these that you can
Suze: get right. So this really is now your wroth quizzy time.
Suze: Are you ready? I'm gonna start out easy for you.
Suze: Roth IRA contributions are made with pre-tax dollars.
Suze: Yes or no?
Suze: Did you answer?
Suze: If you answered no, you are correct. Roth IRA contributions
Suze: are made with after tax dollars, and the reason is
Suze: that's why it gets to be in there and grow
Suze: essentially tax free if you meet certain qualifications. Pre-tax dollars
Suze: from traditional IRAs. Got that, everybody? All right.
Suze: Next question.
Suze: You can still contribute
Suze: to a Roth IRA for the 2024 tax year until
Suze: April 15, 2025. Yes or no?
Suze: Or it could be true or false, up to you.
Suze: Have you answered?
Suze: You can still contribute to a Roth IRA for the
Suze: 2024 tax year until April 15th of 2025. That is true.
Suze: You can. You can also do it with the traditional,
Suze: just so you know.
Suze: Next, Roth IRAs or Roth 401ks, and by the way,
Suze: when I say a Roth 401k or I mention a 401k,
Suze: I also mean a TSP or a 403B all employer
Suze: qualified plans. So a Roth IRA or a Roth 401k.
Suze: Currently require RMDs by April 1st, after the year the
Suze: owner turns 73.
Suze: So whether it's a Roth IRA or a Roth 401k,
Suze: are RMDs required
Suze: by April 1st, after the owner turned 73, yes or no?
Suze: What did you answer?
Suze: That is false because RMDs are never required from a
Suze: Roth account of any kind. That is why I love
Suze: them so much a pre-tax retirement account or a traditional
Suze: IRA 401k or whatever.
Suze: You have to start taking RMDs in most cases out
Suze: of your accounts by April 1st after the year you
Suze: turn currently 73. In a few years that goes up
Suze: to 75. However, in a Roth of any kind now,
Suze: RMDs are not required.
Suze: Next, if you withdraw contributions, not your earnings, but just
Suze: contributions from your Roth IRA, and you can do it
Suze: at any time.
Suze: Is it always tax and penalty free? Yes or no?
Suze: Think about it.
Suze: The answer to that is yes. The reason why I
Suze: love Roth IRAs more than any retirement account out there
Suze: more than a Roth 401k anything is because any money
Suze: that you have originally contributed, you can take out any
Suze: time you want. No limitation on age or how long
Suze: the account has been opened. It's your money. You can
Suze: take it out.
Suze: That's not true for the earnings of the account, but
Suze: it's true for the contributions.
Suze: Now the earnings, however, in a Roth IRA grow tax free.
Suze: But withdrawal of those earnings are always subject to income tax,
Suze: yes or no? So while they're in the account, everybody,
Suze: they're really kind of growing tax deferred everything. This is
Suze: the earnings.
Suze: But withdrawal of those earnings are always the key word
Suze: is always subject to income tax.
Suze: And the answer to that question is no false, as
Suze: long as the account has been open for at least
Suze: 5 years and you are at least 59 and a
Suze: half years of age.
Suze: You're not going to have to pay income tax on
Suze: any of the earnings. So truthfully, if you have a
Suze: Roth IRA that has been open for at least 5 years,
Suze: you're 59 and a half or older, you can take every penny out
Suze: of that account absolutely tax free.
Suze: Next.
Suze: You must have no pre-tax funds in any traditional IRA account.
Suze: That includes a simple IRA, a SEP IRA, a traditional
Suze: IRA like I just said, to avoid tax complications when
Suze: using the back door Roth strategy.
Suze: Remember, everybody, I'll let you think about that for a second.
Suze: There are modified adjusted gross income limits for you to
Suze: be able to have a Roth IRA if you are single.
Suze: You cannot make more than $150,000 a year of modified
Suze: adjusted gross income to put the full max in a Roth.
Suze: That amount goes down, and after $165,000 a year modified
Suze: adjusted gross income, you do not qualify for a Roth
Suze: at all. If you're married filing jointly, those numbers are 236.
Suze: Goes away totally at 246. All right, you make more
Suze: than that.
Suze: So you want to do a backdoor Roth, and to
Suze: do a backdoor Roth, you simply open up a nondeductible IRA.
Suze: You do not take it off your taxes, and you
Suze: convert it to a Roth IRA because you can convert
Suze: any amount of money you want.
Suze: And there are no income limitations on conversion, all right? Therefore,
Suze: to avoid tax complications when you're using a backdoor Roth strategy.
Suze: You must have no pre-tax funds in any traditional pre-tax
Suze: retirement account, true or false?
Suze: That everybody is true.
Suze: Because if you have, let's say a traditional IRA, maybe
Suze: you have a SEP IRA, maybe you have an IRA rollover,
Suze: and you do a backdoor Roth like I just said.
Suze: Then you're gonna have to pay taxes when you convert
Suze: according to a pro rata formula which I have explained
Suze: in previous podcasts, but if you happen to have a pre-tax,
Suze: any kind of retirement account, don't do a back door Roth,
Suze: all right, everybody, just that simple.
Suze: How are you doing on these? Are you doing OK?
Suze: All right, I still wonder how KT would have done anyway. Next,
Suze: the pro rata rule does not apply when converting a
Suze: pre-tax IRA to a Roth IRA.
Suze: All right, does it, does it not?
Suze: No, it does not apply. That is true. Doesn't matter
Suze: how many retirement accounts you have out there when you
Suze: are converting from a pre-tax account to a Roth, you're
Suze: going to have to pay taxes on the entire amount
Suze: you're converting. So the pro rata rule does not apply
Suze: because you're already going to pay a 100% tax on
Suze: everything that you are converting.
Suze: If you convert a traditional IRA.
Suze: To a Roth IRA.
Suze: But the Roth IRA has already been open for over
Suze: 5 years.
Suze: The converted funds fall under the time frame of the
Suze: Roth IRA. So in other words, when you convert from
Suze: a pre-tax to a Roth IRA that has been open
Suze: for over 5 years, you remember the 5 year rule, everybody.
Suze: If it's been opened for over those 5 years, do
Suze: the converted funds take on the time of those 5 years?
Suze: Yes or no?
Suze: And the answer to that is no they do not.
Suze: Converted funds when you are converting from a pre-tax retirement
Suze: account to an after-tax retirement account traditional to wroth, then
Suze: the amount of money that you are converting starts the
Suze: clock for those funds all over again.
Suze: So if you convert 3 times, each one of those
Suze: conversions are going to have their own 5 year clock.
Suze: You have to know that, everybody.
Suze: Now, this one's a little tricky, but if you listened
Suze: to a podcast that I did just a week or
Suze: so ago on a Sunday Suze School, which was about
Suze: what happens, what do you do if you get laid
Suze: off or fired, you should know this.
Suze: You have a Roth 401k, and you've had it for
Suze: 10 years now, right, past the 5 year limit. You've
Suze: had it for 10 years, and now you are rolling
Suze: it over to a brand new Roth IRA, one that
Suze: you're going to open for the very first time. Does
Suze: the time clock of the Roth 401k follow you to
Suze: the Roth IRA?
Suze: So in essence now is that money that's in a
Suze: Roth IRA.
Suze: Has it been deemed to have been open for 10
Suze: years even though you just opened the Roth IRA?
Suze: Yes or no?
Suze: And the answer to that is no. Listen closely, everybody.
Suze: When you go from a Roth 401k, which is a
Suze: certain type of retirement account.
Suze: And you roll it to a Roth IRA.
Suze: Now you are changing the type of retirement account, even
Suze: though they're both tax free from an employer sponsored one
Suze: at work to your own individual one so it's brand
Suze: new for you.
Suze: It takes on the time clock of how many years
Suze: the Roth has been opened, the Roth IRA, not the
Suze: Roth 401k. So if you are just now opening a
Suze: Roth IRA when you do it, the time clock will
Suze: start ticking, and you will have to leave it there
Suze: for 5 years. If your Roth IRA has already been
Suze: opened for 5 years or longer,
Suze: now it takes on that 5 years of the Roth IRA,
Suze: but the 10 years of the Roth 401k mean absolutely
Suze: nothing when you are rolling it to a Roth IRA. However,
Suze: if you leave that Roth 401k
Suze: at your place of employment, so therefore it has been
Suze: open longer than 5 years, and you are 59 and a half years
Suze: of age or older. You can take it all out
Suze: without any taxes or penalties. So you just decide, but
Suze: my suggestion to all of you is, can you just
Suze: all open up a Roth IRA right now if you
Suze: don't have one. Just open it with a dollar.
Suze: And that starts the time clock ticking. So for all
Suze: the money then that you might have in a Roth 401k,
Suze: Roth TSP, Roth 403B, if you roll it at that
Suze: point into the Roth IRA whenever you decide to do so,
Suze: it takes on the time of how long that Roth
Suze: IRA has been open. All right.
Suze: Next, this is a trick one, so listen closely.
Suze: The IRS aggregation rules require you to consider all your
Suze: Roth IRAs as one account,
Suze: when calculating your RMDs, true or false?
Suze: The answer to that is false. Did I not say
Suze: to you in one of the previous questions, that Roths
Suze: never have RMDs?
Suze: That was a trick question. So what you do need
Suze: to know, however, is if it was a traditional IRA.
Suze: Traditional whatever you may have, even 401k, anything.
Suze: The IRS will absolutely aggregate all your pre-tax accounts to
Suze: determine how much you should pay in RMDs again. Roths
Suze: never pay RMDs, which is why I love them so much.
Suze: Ready?
Suze: Withdrawals of only your contributions in a Roth IRA are
Suze: always tax free and penalty free regardless of your age
Suze: and how long the account has been open.
Suze: Think about it a little bit ago.
Suze: I answered that I explained how a Roth works. So
Suze: this is, if you only want to withdraw your contributions,
Suze: can you always do so tax free and penalty free
Suze: regardless of your age and how long the account has
Suze: been open? Can you? The answer is yes you can.
Suze: That is again I'm driving this point home because that
Suze: is again why I love Roth IRA so much.
Suze: Next, I'm 60 years of age and I opened a
Suze: Roth IRA 3 years ago.
Suze: If I take out my earnings, I'm not talking about
Suze: contributions now.
Suze: If I take out my earnings, remember the 5 year rule, everybody,
Suze: will I have to pay taxes and the 10% penalty
Suze: on my earnings?
Suze: Yes or no?
Suze: The answer to that is a little tricky, right? You
Suze: will have to pay taxes on your earnings, but you're
Suze: not going to have to pay the 10% penalty because
Suze: you are over 59 and a half years of age. So what I
Suze: want you to take away from that question is, once
Suze: you turn 59 and a half years of age, don't ever again when
Suze: withdrawing money from a retirement account,
Suze: worry about the 10% penalty. It doesn't matter what the
Suze: rules say, whatever you are 59 and a half years of age or older.
Suze: And therefore the 10% penalty does not apply. However,
Suze: the 5 year rule will apply for earnings, so the
Suze: account has got to have been opened for at least
Suze: 5 years for you to also withdraw the earnings tax free,
Suze: even if you deposited everything 2 years ago. If the
Suze: account had been opened for at least 5 years, it qualifies.
Suze: Open your Roth IRA today. Got that, everybody?
Suze: OK, we're almost there.
Suze: In a non-eligible designated beneficiary inherited Roth IRA.
Suze: The account has to be wiped clean in 10 years.
Suze: Do you all remember the difference between an eligible designated
Suze: beneficiary and a non-eligible designated beneficiary when it comes to
Suze: retirement accounts? Almost all of you are going to be
Suze: non-eligible designated beneficiaries, unless of course you are a spouse,
Suze: you are a minor child until you turn the age
Suze: of majority.
Suze: You're 10 years younger than the owner of the IRA
Suze: or you are disabled.
Suze: That makes you an eligible designated beneficiary, and essentially you
Suze: have the same rights as if you were the owner, really.
Suze: However, a non-eligible designated beneficiary, a child, most of you
Suze: are governed by certain laws, but this is a Roth
Suze: IRA I'm talking about here.
Suze: So in a non-eligible designated beneficiary inherited Roth IRA.
Suze: Does the account have to be wiped clean in 10 years?
Suze: And the answer to that is yes, it does. They
Suze: are not going to allow you to continue to accumulate
Suze: growth tax free. Now listen to me.
Suze: If this was a traditional IRA, it has to be
Suze: wiped clean as an inherited traditional IRA within 10 years
Suze: as well. But because it will be taxable to you
Suze: in that situation, you want to start taking it out
Suze: year by year by year. So in the 10th year
Suze: it's almost all wiped out.
Suze: In a Roth you would let it accumulate for all
Suze: 10 years and grow and grow and grow.
Suze: Because when you take it out, it's all going to
Suze: be tax free, so you would be taking advantage of
Suze: the tax-free status of that account.
Suze: All right, little trick one here. I have $200,000 in
Suze: my 401k at work.
Suze: And I want to convert it all at one time
Suze: to a Roth 401k.
Suze: Is this smart? I still have at least 20 years
Suze: till I need this money. Is this a smart thing
Suze: to do, everybody? Yes or no?
Suze: Mhm.
Suze: It is not a smart thing to do, and the
Suze: key there was all at once. If this person converted
Suze: all $200,000 at once, all $200,000 is going to be taxable.
Suze: So why not convert maybe 20,000 1 year, maybe 20,000 another,
Suze: maybe take 10 years to get it in there or
Suze: whatever your tax person says you can convert without you
Suze: really screwing up your taxes, all right.
Suze: Next, if I have a Roth 401k,
Suze: that I max out every year. Can I also max
Suze: out a Roth IRA?
Suze: Can you have really this question is asking. Can you
Suze: have a Roth 401k at work? Can you have a
Suze: Roth IRA as well? Could you even have a traditional
Suze: 401k at work and a traditional IRA if you wanted,
Suze: or any combination thereof? Can you do that and max
Suze: them all out?
Suze: Did you write your answer down?
Suze: The answer is yes, you can max out a Roth 401k.
Suze: You can also max out a Roth IRA.
Suze: Next, can I open multiple Roth IRAs in a single year.
Suze: And fully fund each one with $7000 since I'm under
Suze: the age of 50.
Suze: Remember, the maximum amount you can put in a Roth
Suze: or traditional if you're under 50 is $7000 a year.
Suze: Or 8000 if you're 50 and older.
Suze: So can you open up 3 or 4 Roth IRAs
Suze: in one year and put $7000 in each? Yes or no?
Suze: And the answer to that is no, you cannot.
Suze: You can open up multiple Roth IRAs, however, but you
Suze: can't max out each one.
Suze: The most you could do is put maybe $2000 in
Suze: 1 $3000 in another, $1000 in another, another $1000 so
Suze: it all adds up to $7000 but that's the max.
Suze: But it would make no sense for you to have
Suze: multiple accounts like that, none if you ask me. Last
Suze: question is a very hard question.
Suze: Is there any reason
Suze: that you should have a traditional IRA or a traditional
Suze: 401k instead of a Roth,
Suze: in Suze's opinion?
Suze: And the answer to that is no. There is absolutely,
Suze: in my opinion, not one reason in the world you
Suze: would ever want to do a pre-tax retirement account. For
Suze: those of you who don't qualify for a Roth IRA income-wise,
Suze: there are no income limitations if you do a Roth
Suze: at work.
Suze: So if you are offered a Roth of any kind
Suze: at work, you should be taking it. You also can
Suze: always do a back door Roth IRA. Just don't have
Suze: any pre-taxed or really other retirement accounts because then you'll
Suze: have to do the pro rata rule. I can go
Suze: on and on forever.
Suze: About why a Roth IRA or a Roth 401k 403b
Suze: or TSP, it should be mandatory.
Suze: Especially if you're not making a lot of money and
Suze: if you listen to a few Sundays ago podcast which
Suze: is about what do you do when you lose a job.
Suze: It would explain to you why you would have made
Suze: a big mistake by opening a pre-tax retirement account. Remember, everybody,
Suze: you never know what can happen and when it's going
Suze: to happen. Now I would love for all of you
Suze: to post on the Women and Money Community app by
Suze: going to Apple Apps or Google Play. I want you
Suze: to post under today's podcast. How many did you get right?
Suze: Out of all of these, how many? Tell me how
Suze: you did. Tell me if this was helpful.
Suze: And hopefully KT will listen to this cause I got
Suze: news there is no way she is going to do
Suze: a quizzy, and that is her prerogative. So until Sunday,
Suze: there's only one thing that I want you to remember
Suze: when it comes to your money, and it is this
Suze: people first, then money, then things, and the best retirement
Suze: account in the world is a wrath of any kind.
Suze: Now
Suze: you stay safe.