Suze Orman Shows the Exact Steps on a $1.6 Million Roth Conversion to Shrink Future RMDs

Most retirees with seven-figure 401(k) balances never run the math on what their Required Minimum Distributions will look like at 73. They should. A $1.6 million pre-tax balance can throw off enough forced income to push Medicare premiums into surcharge territory, drag heirs into the top bracket, and erase decades of tax planning in a single year. That is exactly the trap Suze Orman walked a caller named Gina through on a recent episode of her podcast, and her answer is a clinic in how to think about Roth conversions.

I’ve been studying Roth conversion strategies for more than a decade, and Gina’s situation is one I see constantly in my inbox. She called in with a clean setup and a messy plan. She is 56, recently retired with a pension, sitting on $1.6 million in a pre-tax 401(k) and another $200,000 in a Roth 401(k). She wanted to convert the pre-tax money to a Roth IRA over 10 years without touching her liquid savings to cover the tax bill. Her company benefits person suggested a three-step workaround: do an in-plan rollover from the pre-tax 401(k) to the Roth 401(k), then roll the Roth 401(k) to a Roth IRA, then take a separate 401(k) withdrawal with 100% tax withholding to cover the bill.

Suze’s response: “this is the stupidest thing I’ve ever heard in my Life, to put it mildly.” Her fix was one sentence: “just take $100,000 out of your pre tax 401k, put it directly converting it into your Roth IRA and pay the taxes on it because there is no way for you to get around the taxes.”

Why the simple path wins: the RMD math nobody shows you

Suze is right. The benefits person’s plan added two custodial steps that change nothing about the tax owed. An in-plan Roth rollover is a conversion. It triggers ordinary income tax that year regardless of where the money lands next. Layering a Roth 401(k) to Roth IRA rollover on top introduces a separate five-year clock on earnings withdrawals without saving a dollar of tax.

The real prize is shrinking that pre-tax balance before age 73, when RMDs start. The IRS Uniform Lifetime Table uses a divisor of roughly 26.5 at age 73. On a $1.6 million traditional IRA, that is a first-year RMD around $60,000, and the divisor drops every year after, forcing larger withdrawals as the balance compounds. If Gina lets the $1.6 million keep growing untouched for 17 years at a modest return, she could easily be looking at first-year RMDs north of $150,000, taxed as ordinary income on top of her pension and Social Security.

Now run Suze’s plan. Converting roughly $160,000 per year for 10 years pulls the entire pre-tax balance into a Roth IRA, where there are no RMDs during her lifetime. By 73, her traditional balance is zero, her RMD is zero, and the Roth grows tax-free for her, her spouse, and ultimately her heirs (subject to the 10-year drawdown rule for non-spouse beneficiaries).

The IRMAA cliff most people don’t see coming

Large RMDs raise your income tax bill and your Medicare premiums through IRMAA, the Income-Related Monthly Adjustment Amount. Cross an IRMAA threshold by one dollar and your Part B and Part D premiums jump for the entire year. With Core PCE still running hot relative to its 12-month range, bracket creep is a real risk. Converting in your late 50s and 60s, while you control your income, is how you stay under those cliffs in your 70s.

The variable that flips the answer

The single factor that determines whether Suze’s plan works for you is whether you have non-retirement cash to pay the conversion tax. If Gina pays the tax from outside savings, every dollar of the $1.6 million lands in the Roth and compounds tax-free. If she withholds the tax from the conversion itself (and she is under 59½ on some of those dollars), she shrinks the Roth and may owe a 10% early withdrawal penalty on the withheld portion. A reader sitting on a taxable brokerage account or money market fund yielding something close to the 10-year Treasury’s 4.7% has the ammunition to do this cleanly. A reader without outside cash should convert smaller amounts or wait.

What to actually do this week

1. Pull your latest 401(k) and IRA statements and add up every pre-tax dollar. That is your RMD base.
2. Run a projected RMD at 73 using the IRS Uniform Lifetime Table divisor and a reasonable growth assumption. Most custodians offer a free calculator.
3. Map your current marginal bracket against the next IRMAA threshold on Medicare.gov. The gap between the two tells you how much you can convert each year without triggering surcharges.
4. Open a direct conversion path from your pre-tax 401(k) or rollover IRA to a Roth IRA at the same custodian. Skip the in-plan gymnastics.
5. Earmark outside cash for the tax bill and make quarterly estimated payments to avoid the underpayment penalty Suze warned about.

Gina’s instinct, spreading $1.6 million over 10 years, was correct. The execution her benefits person proposed was not. Shrink the pre-tax balance now, pay the tax from outside money, and your future self gets a smaller RMD, a smaller Medicare premium, and a larger tax-free inheritance to pass on.