Suze Orman: Make This Urgent Money Move Now ‘Before It’s Too Late’
Written by
Angela Mae
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Rebekah Evans
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Personal finance expert Suze Orman released a YouTube video on why you should convert to a Roth IRA now before it’s too late — especially amid U.S. stock market turmoil.
Here’s her reasoning, how to do it and why it might be a smart move to make.
Orman Wants You To Convert To a Roth IRA Right Now
Orman has long been a supporter of Roth IRAs.
“I want you to do a Roth IRA no matter how much money you make,” she said in the video. It doesn’t matter if it’s a Roth 401(k), 403(b), Roth TSP or a Roth IRA.
For Orman, it doesn’t even matter what your income is. Just put your money — however much you can (up to the contribution limit) — in your Roth account.
And if you don’t have one? Convert to one.
“I don’t care what tax bracket you’re in,” Orman told CNBC. “You have to be crazy to do anything other than a Roth retirement account.”
Key Benefits of a Roth IRA
But why should you use a Roth IRA over any other option? Below are the biggest benefits.
- Your gains aren’t taxed. Unlike a traditional IRA, you pay income tax on your Roth IRA contributions. The trade-off is that you don’t get taxed on your gains. If you wait to pull from your account until you’re 59 ½ (and you’ve owned the account for at least five years, according to Vanguard), you also won’t be taxed on those withdrawals.
- You can benefit from lower tax rates. Federal income tax rates tend to increase over time. If you contribute to a Roth IRA (and pay income tax now), you won’t have to worry about future tax rates. You might even pay a lower tax now than you would 10, 20, 30 or 40 years from now.
Convert While the Markets Are Down
For Orman, converting to a Roth IRA right now — while the markets are down — is to your advantage. Why?
“Your portfolio is worth less. Stocks have gone down,” she said. “And maybe your stocks have gone down a whole lot. If that is true, this might be the perfect time for you to think about converting to a Roth IRA.”
If you have a retirement plan at work, you can also think about converting to a Roth there.
“The less money you have that you’re converting, the less taxes you owe,” Orman said. “So, if the stock market has gone down — which it has — and you convert when [your stocks are worth less], then you’re winning.”
How To Make It Happen
Converting to a Roth IRA involves moving the funds from a pre-tax account — like a traditional 401(k) or IRA — into a Roth account. You’ll need to pay taxes on the converted amount, but then your money can grow tax-free. It can also be withdrawn tax-free during retirement.
You can convert many types of accounts into a Roth IRA, including a traditional IRA, 401(k), 403(b), SIMPLE IRA and a SEP account. Limitations may apply, so it’s important to understand the criteria and advantages.
Doing a Roth IRA conversion is easy. If you have an account with Fidelity or Vanguard, for example, simply follow the steps to make it happen. You can also speak with a financial advisor about your options.
Before making any major financial moves, Orman suggested considering your situation. Calculate how much taxes you would owe with a Roth IRA conversion, speak with a certified public accountant (CPA) and consider the advantages of having a Roth IRA.
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