Suze Orman Calls This $1.6 Million 401(k) Rollover Move ‘Crazy’

Core Viewpoint - Financial expert Suze Orman advises against rolling over a large pretax 401(k) into a Roth account due to significant tax implications, labeling such a strategy as "crazy" [2][4]. Group 1: Tax Implications of 401(k) to Roth Conversion - A retiree named Gina plans to move her $1.6 million pretax 401(k) into a Roth 401(k) and then into a Roth IRA, which Orman argues could lead to substantial tax liabilities [2][3]. - Orman emphasizes that converting from a pretax account to an after-tax account is not a rollover but a conversion, triggering immediate income tax obligations [5][6]. - The estimated tax bill for Gina's strategy could be around $40,000, which she intended to cover by withdrawing from her 401(k) [4][6]. Group 2: Alternative Recommendations - Instead of the proposed strategy, Orman suggests that Gina withdraw $100,000 from her pretax 401(k), convert it to her Roth IRA, and pay taxes on that amount [6]. - Orman clarifies that rolling funds from a Roth 401(k) to a Roth IRA does not guarantee tax-free withdrawals unless the Roth IRA has been open for at least five years [7]. - If the Roth IRA is less than five years old, earnings on rolled-over amounts may be taxable and subject to a 10% penalty if withdrawn early [8].