Suze Orman’s Pre-RMDs Playbook: Why She Tells Retirees to Roll the 401(k) to an IRA Immediately

On the June 13, 2024 episode of Women & Money, a listener named Peggy asked what plenty of pre-retirees feel but never say out loud. “I’ve been watching and listening for over 10 years. But I’m getting ready now for retirement in the next two years. What is the purpose of moving my 401k and 403 into an IRA? I feel so knowledgeable because of you, but I’m embarrassed to say I don’t quite know how to retire.” Suze Orman has answered this question for years with the same instruction: once you stop working, roll the traditional 401(k) or 403(b) into a traditional IRA. Pre-tax goes to pre-tax. Then build your retirement plan from there.

I’ve been studying retirement tax planning for more than a decade, and the stakes here are real. Leave the money in the old employer plan and you inherit whatever fund menu, fee structure, and withdrawal rules that plan was built around. You also lose access to two of the most powerful tax levers available to retirees between roughly 60 and 75: the Roth conversion runway and the qualified charitable distribution.

The verdict: she is right, and the reason is control

Orman’s advice is sound for the vast majority of retirees. The rollover itself does not trigger taxes when you go traditional 401(k) to traditional IRA. What it buys you is optionality, and optionality is what makes retirement tax planning work. Four mechanics matter.

Investment menu. A typical 401(k) offers a dozen or so funds chosen by a committee. An IRA at Fidelity, Schwab, or Vanguard gives you essentially every mutual fund, ETF, Treasury, and CD on the market. For a retiree who needs a bond ladder, a money market sleeve for the next three years of spending, and a stock allocation for the long money, the IRA is a bigger toolbox.

Roth conversion runway. Once you stop working, your taxable income usually drops before Social Security and required minimum distributions kick in. That window, often the years between retirement and age 73, is when you can convert chunks of the traditional IRA to a Roth IRA at lower tax rates. Doing partial Roth conversions out of a 401(k) is clunky or impossible at many employers. Out of an IRA, it is a phone call.

RMD aggregation. RMDs start at age 73. Under current law, if you have three traditional IRAs, the IRS lets you calculate the RMD across all of them and pull the entire amount from any one account. With multiple 401(k)s, you must take each plan’s RMD from that specific plan. Consolidating into one IRA collapses the paperwork and lets you pull from whichever holding makes the most sense that year.

Qualified charitable distribution. Starting at age 70½, you can send up to roughly $105,000 a year (indexed for inflation) directly from an IRA to a qualified charity. The money counts toward your RMD but never hits your adjusted gross income. QCDs are an IRA feature. They do not work from a 401(k).

What the math looks like for a real retiree

Imagine someone retiring at 63 with $800,000 in a traditional 401(k) and $40,000 in expected Social Security at 67. From 63 to 72, taxable income is low. If that retiree rolls to an IRA and converts $50,000 a year to a Roth during those low-income years, a meaningful slice of the portfolio moves to a tax-free bucket at the 12% or 22% federal bracket instead of the bracket they would face once RMDs and Social Security stack on top of each other at 73.

Leave the same $800,000 in the 401(k) with no conversion strategy and the RMD at 73 lands on top of full Social Security. That can push ordinary income into a higher bracket, raise Medicare IRMAA surcharges, and increase the taxable portion of Social Security. The rollover unlocks the tools that save taxes.

The one variable that can flip the decision

Plan quality. A small minority of 401(k) plans have institutional share classes with expense ratios well below what a retail IRA investor can access, plus a stable value fund paying meaningfully more than a money market. If your plan is one of them and you do not need Roth conversions or QCDs, staying put can be defensible. Two other carve-outs: the rule of 55 (penalty-free withdrawals from the current employer’s 401(k) if you separate at 55 or later) and net unrealized appreciation on highly appreciated company stock. Both die the moment you roll.

What to actually do before the rollover paperwork

1. Pull your 401(k) plan’s fee disclosure and compare the expense ratios to a Vanguard or Fidelity equivalent. If your plan is more expensive, the rollover case strengthens immediately.
2. Check for company stock in the plan. If you have a large embedded gain, talk to a CPA about NUA before initiating any transfer.
3. Map out a Roth conversion schedule from your retirement date to age 73. Decide how much to convert each year to fill up the 12% or 22% bracket without spilling into the next one.
4. Choose one IRA custodian and consolidate. Multiple IRAs are fine legally, but one account makes RMD aggregation and QCDs cleaner.
5. Set a calendar reminder for the year you turn 70½ to start using QCDs if you give to charity.

Orman’s instruction to Peggy is about moving the money to the account type that gives a retiree the most tax levers between 60 and 75. Use them or skip them, but at least own them.