Suze Orman on Shrinking Your IRA Before RMDs Force a Bigger Tax Bill

If you are in your 70s with a sizable traditional IRA and adult kids in their peak earning years, the question of when to pull money out is worth more than most stock picks you will ever make. On a recent episode of her podcast, a listener named Jean wrote in saying her financial advisor suggested she start reducing her IRA above the required minimum distribution, putting the money in an account to be inherited after her death. Suze Orman pushed back, and her counter-strategy is the one worth studying.

Here is the exact framing Suze gave: “You should take additional money out above the RMD, no problem. But you should convert it to a Roth IRA in your name. You should let it grow tax free.” She added the protective logic behind it: “You do not know what your life is going to be at 83, at 93, at 97.”

The verdict: shrink the IRA, but route it through a Roth

I’ve been studying retirement tax planning for more than 15 years now, and the advisor in this case was directionally right and tactically wrong. Pulling money out of a traditional IRA above the RMD can save a lot of tax, but only if the dollars land somewhere they can keep compounding tax-free. Parking the withdrawal in a regular brokerage account, as the advisor suggested, throws away the most valuable real estate in the tax code.

Here is the math that matters. Assume a 75-year-old in the 22% federal bracket has a $1 million traditional IRA. Under the SECURE Act, when she dies, her adult children (non-spouse heirs) must drain the inherited IRA within 10 years. If those kids are doctors, lawyers, or dual-income professionals in their 50s, they are very likely in the 32% or 35% bracket. Every $100,000 distributed to them is taxed at their rate, not hers.

Run it out. $100,000 withdrawn now at 22% costs $22,000 in tax. The same $100,000 forced out to heirs at 35% costs $35,000. That is a $13,000 gap on every $100,000, and the gap widens further once you stack state income tax on top in places like California or New York.

Now layer in the Roth conversion piece. If she takes the $100,000 above her RMD, pays the $22,000 in tax from outside funds, and converts the remaining $78,000 into a Roth, that Roth has no RMDs while she is alive. With the 10-year Treasury near 5%, even a conservative Roth allocation can compound meaningfully over the 17 to 20 years Suze referenced for someone in their early 70s. When the heirs eventually inherit the Roth, they still face the 10-year drain rule, but every dollar comes out tax-free.

The variable that flips the answer

The single factor that determines whether this strategy pays off is the spread between the retiree’s current bracket and the heir’s projected bracket during the 10-year withdrawal window.

If your kids are in the 12% bracket and you are in the 24% bracket, the math reverses. Accelerating withdrawals now means paying tax at a higher rate than your heirs ever would, and the Roth conversion stops being free money. In that case, leaving the traditional IRA alone and letting heirs drain it slowly over 10 years is the cheaper outcome.

If your kids are in the 32% or 35% bracket and you are sitting in the 22% or 24% bracket, the spread is wide enough that every dollar moved out at your rate is a dollar saved. That is the situation Suze was addressing, and it is the situation most retirees with seven-figure IRAs and professional-class adult children actually face.

What to do this week

1. Pull last year’s Form 1040 and find your marginal bracket. Then ask your adult children, plainly, what bracket they are in. You cannot run this math without both numbers.
2. Calculate the “bracket headroom” you have left. Find the dollar amount that would fill the top of your current bracket without bumping you into the next one. That is the maximum you should convert in a single year.
3. Convert above the RMD into a Roth in your name, not a taxable account. The RMD itself cannot be converted, but anything beyond it can.
4. Pay the conversion tax from non-IRA money. Otherwise you shrink the Roth before it ever starts compounding.
5. Name your kids or grandkids as Roth beneficiaries. They still face the 10-year rule, but every withdrawal comes out tax-free.

Jean’s advisor saw the right problem: a traditional IRA is a tax bill waiting to detonate on whoever inherits it. Suze’s fix is the one worth copying. Shrink the IRA, yes, but route every dollar you pull out into a Roth so it keeps working for you while you are alive and lands tax-free in your heirs’ hands when you are not.