'You Have Got To Start Converting Now To A Roth 401(k)' – Suze Orman Tells 45-Year-Old Couple Looking To Retire In 10 Years

On a recent episode of the "Women & Money" podcast, a longtime listener named Chewy sought advice from personal finance expert Suze Orman on whether she should convert her traditional 401(k) to a Roth 401(k). 

Chewy shared that early in her career, she received some unfortunate advice from her employer's HR department not to do a Roth conversion because, despite maxing out her 401 (k) match, she'd be in a lower tax bracket when she retired. Now, at 45, Chewy and her husband each have around $2 million saved for retirement, which they hope to begin in 10 years.

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Concerned about the high taxes they would face if they converted to a Roth 401(k), Chewy sought Orman's advice. Orman put it bluntly: "I don’t care what anybody else has told you, what any other adviser tells you. What Suze Orman would tell you at 45 – I would be converting some of this money right now to a Roth 401(k)." 

Orman emphasized the importance of understanding the long-term benefits of a Roth 401(k). She explained that by converting now, Chewy and her husband could take advantage of the time that investments could grow tax-free. "If you’re gonna retire at 55, hopefully, you're gonna have enough money in other places that you don't need this money so that you can actually access it tax-free." 

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Another critical point Orman made was regarding Required Minimum Distributions (RMDs). RMDs start at age 73, and the amounts required can be substantial, resulting in higher tax liabilities. "Think about, given how much money you have in a 401(k) today, how large your RMDs are going to be. Are you kidding me?" Orman exclaimed. By converting to a Roth 401(k), Chewy and her husband could avoid these large RMDs and the associated tax burdens.

Orman also suggested considering a backdoor Roth conversion as an alternative if they cannot contribute directly to a Roth 401(k). “Your job is to get as much money as you possibly can into a Roth 401(k). That's what I would be telling you," she asserted.

Orman's advice and Chewy's experience highlight the importance of proactive financial planning and understanding various retirement savings accounts’ short- and long-term benefits. Roth 401(k)s offer tax-free withdrawals in retirement, providing more flexibility and potentially reducing tax liabilities. For those in higher tax brackets, converting to a Roth 401(k) while still earning can be a strategic move to manage future taxes.

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