A couple ages 50 and 52 appeared to have checked nearly every retirement box: about $2 million in combined 401(k) accounts, no debt, a paid-off home, $300,000 in CDs, $130,000 in mutual funds and stocks, and a future pension of $7,000 a month. Yet when their question reached Suze Orman’s Women & Money podcast, she focused on a weakness hidden inside the impressive numbers. Most of the retirement savings were held in pre-tax accounts, meaning future withdrawals could create a much larger tax burden than the couple expected. Her warning was not that they had saved too little, but that they had built too little tax flexibility.
The letter Suze heard on air
The listener, Jessica, originally asked a straightforward question: How much of the couple’s cash should remain liquid, and how much should be invested? She explained that they had approximately $300,000 in CDs and another $130,000 in mutual funds and individual stocks. Their home was paid off, they carried no debt, and retirement was only a few years away. Co-host KT added that the couple had two children in college, a small 529 balance, roughly $2 million across their 401(k)s, and a fixed pension expected to pay $7,000 per month. By most conventional measures, they appeared exceptionally well prepared financially.
Suze focused on the tax problem
Orman barely addressed the cash-versus-investing question. Instead, she zeroed in on the $2 million held in pre-tax retirement accounts. Traditional 401(k) contributions generally reduce taxable income when they are made, but the trade-off arrives later: previously untaxed contributions and investment gains are generally taxed as ordinary income when withdrawn. Orman argued that this couple had concentrated too much wealth in one tax bucket. With a pension, Social Security, and eventual withdrawals all potentially landing on the same return, they could have less control over their taxable income than the headline balance suggests.
The exemptions line on a Form 1040 tax form.
The tax-bracket claim needs context
The original version overstated one point: this couple is not automatically destined for the 32% federal bracket. For married couples filing jointly in 2026, the 22% bracket begins above $100,800 of taxable income, the 24% bracket above $211,400, and the 32% bracket above $403,550. Those thresholds apply after deductions, including a $32,200 standard deduction for most joint filers. Their $84,000 annual pension could consume part of the lower brackets, but the final result would depend on how much of the pension and Social Security is taxable, their annual 401(k) withdrawals, deductions, and other income annually.
Required withdrawals could become a problem
Required minimum distributions make the issue more important, but not immediate. Because both spouses were born after 1960, current law would generally place their RMD starting age at 75, not 73. At that point, the government requires annual withdrawals from traditional retirement accounts even if the household does not need the money. Those withdrawals are included in taxable income except for any portion already taxed. A large balance could therefore create substantial mandatory income later in life, potentially affecting federal taxes and Medicare income-related premiums. Roth 401(k)s and Roth IRAs do not require lifetime RMDs for the original owner.
What the children could inherit
The inheritance concern also needs a qualifier. If the couple’s adult children inherit a traditional 401(k) or IRA as non-spouse beneficiaries, taxable distributions generally must be included in their income, and most non-spouse heirs must empty the account by the end of the tenth year after the owner’s death. They generally cannot convert an inherited traditional IRA into their own Roth IRA. An inherited Roth is usually more favorable because qualified withdrawals are generally tax-free, although heirs still face distribution rules and earnings can be taxable if the Roth has not satisfied its five-year requirement. A surviving spouse has broader rollover options.
Suze’s proposed solution
Orman’s proposed solution was to begin moving the money toward Roth accounts “little by little” rather than converting the entire balance at once. An in-plan Roth rollover may be available if the employer’s 401(k) permits it; otherwise, other rollover or conversion options may become available when the worker is eligible to take a distribution or leaves the employer. Any previously untaxed amount converted is added to gross income for that year. That makes a $2 million conversion in one shot potentially disastrous, while a multiyear plan can spread the tax cost and gradually create a pool of money that may later be withdrawn tax-free.
How much should they convert each year?
The right annual conversion amount depends on more than today’s marginal bracket. A useful plan compares the tax rate paid on a conversion now with the likely rate on withdrawals later, then tests how the added income affects deductions, credits, capital-gains rates, health-insurance subsidies before Medicare, and Medicare premiums afterward. Converting at 24% today could be attractive if the same dollars would likely be taxed at 32% later, but that outcome is not guaranteed. A household expecting lower retirement income may benefit from converting less. State income taxes, charitable plans, pension timing, Social Security timing, and available cash to pay the tax all matter.
What to do now
Start by separating every retirement balance into pre-tax, Roth, and after-tax dollars. Then ask each plan administrator whether the account offers a Roth 401(k), accepts Roth contributions, and permits in-plan Roth rollovers. Redirecting future contributions to Roth may improve tax diversification, but it is not free: Roth contributions are made with after-tax dollars and can increase today’s tax bill compared with pre-tax contributions. Before converting existing money, have a tax professional model several annual amounts rather than simply filling a bracket by instinct. The couple already accomplished the hardest task by saving $2 million; the next step is deciding when that money should be taxed.
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