Suze Orman's Women & Money (And Everyone Smart Enough To Listen)
Ask KT & Suze Anything: A Roth Quizzy For You
Thu, 06 Mar 2025
On this episode, Suze asks you the questions! Suze has prepared a special Roth quizzy for you. After you listen, head over to the Women & Money community app and tell Suze how many answers you got correct. Jumpstart financial wellness for your employees: https://bit.ly/SecureSave Protect your financial future with the Must Have Docs: https://bit.ly/3Vq1V3GGet your savings going with Alliant Credit Union: https://bit.ly/3rg0YioGet Suze’s special offers for podcast listeners at suzeorman.com/offerJoin Suze’s Women & Money Community for FREE and ASK SUZE your questions which may just end up on the podcast. Download the app by following one of these links: CLICK HERE FOR APPLE: https://apple.co/2KcAHbH CLICK HERE FOR GOOGLE PLAY: https://bit.ly/3curfMISee omnystudio.com/listener for privacy information.
Chapter 1: What are the current interest rates for CDs?
All right, listen up to me, everybody. Interest rates are not going to last. They're going down, down, down, down, down. So I want you to take advantage of the 12 to 17 month CD at myalliant.com. You have to look at it. So much higher than treasuries. I cannot even tell you. So currently, they are paying for amounts of $1,000 to $74,999, 4.25 APR for $75,000 and up. It is 4.30.
4.25.
4.25.
4.25. We are strong.
We are strong. We are wise.
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Chapter 2: Why is KT not taking the Roth quiz?
March 6, 2025. Welcome, everybody, to the Women in Money podcast, as well as everybody smart enough to listen. No, I know, I know. Today is supposed to be Ask KT and 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 quiz that I was going to give KT? 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.
Chapter 3: What are the basics of a Roth IRA?
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 after-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.
Chapter 4: Can I contribute to a Roth IRA for the 2024 tax year?
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 15th, 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 15th of 2025. That 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 mentioned a 401k, I also mean a TSP or a 403b, all employer qualified plans. So a Roth IRA is or a Roth 401k currently require RMDs by April 1st after the year the owner turns 73.
Chapter 5: Are RMDs required for Roth IRAs?
So whether it's a Roth IRA or a Roth 401k, our RMDs required by April 1st after the owner turns 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 IRA, 401k or whatever, you have to start taking RMDs in most cases as
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 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.
Chapter 6: What is the five-year rule for Roth IRAs?
As long as the account has been open for at least five years and you are at least 59 1⁄2 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. If you are single or
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 of 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?
Chapter 7: How does the backdoor Roth strategy work?
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 are you doing on these? Are you doing okay? All right. I so 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 timeframe of the Roth IRA. So in other words, when you convert from a pre-tax to a Roth IRA that has been open for 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 operating
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, right? 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.
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Chapter 8: Does a Roth 401k rollover affect the time clock of a Roth IRA?
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 401k mean absolutely nothing when you are rolling it to a Roth IRA. However, if you leave that Roth 401k,
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 403b, 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 401k, 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 IRAs 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 gonna 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 1⁄2 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 1⁄2 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.
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