Suze Orman: The Biggest Mistake I Have Made With My Money
Written by
Peter Burns
Edited by
Amber Barkley
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Individuals with seemingly boundless wealth likely have made many good decisions to get where they are. They may have picked the perfect career, bought great investments, stuck to a strict budget and found the best way to get out of debt. However, no one can get every decision right, and even the richest people have their big mistakes.
Suze Orman — author, financial advisor and host of the Women & Money podcast — admitted her biggest financial mistake in her podcast episode “Suze School: Four Things You Need to Know.” She also offered advice on how to make sure it doesn’t happen to you.
Orman’s Mistake
Orman said, “The biggest mistake I have made, in my opinion, with my money is not taking advantage of the one-time conversion that I could’ve done from my pre-tax into a Roth and just had that money grow.”
The process she referenced is a Roth conversion, which allows you to transfer funds from a 401(k) or traditional individual retirement account (IRA) into a Roth account. In a Roth conversion, you must pay taxes on the amount you’re moving into the account, because it wasn’t taxed previously.
For example, you must pay taxes if you plan to move $50,000 from a traditional IRA into a Roth IRA. If you’re in the 24% tax bracket at the time of the conversion, you’ll pay $12,000 in taxes. You can withhold that amount from the $50,000 you’re transferring or pay it using other funds. After you’ve paid the taxes, your $38,000 — or $50,000 — will convert to your Roth IRA and will be free to grow endlessly.
The mistake of not transferring the money into a Roth account means Orman now must make annual withdrawals when she turns 73. If her money were in a Roth account, she could continue to let her money compound over time without interference, amounting to a much larger sum over the long term.
Retirement Accounts
Orman’s mistake relates to how she managed her retirement accounts. When saving for retirement, you can choose to contribute to different types of accounts. Knowing the differences is important to help you make the right choice.
401(k)
A 401(k) is a retirement plan for company employees. With a 401(k), you can contribute pre-tax money straight from your paycheck into the account. As of 2024, you can contribute up to $23,000 annually.
Your employer usually invests your funds and they grow tax-free until you withdraw them in retirement. Because you’ve deposited pre-taxed income, you must pay taxes on your withdrawals. When you reach age 73, the Internal Revenue Service (IRS) mandates that you withdraw required minimum distributions each year, which depend on your account balance and life expectancy.
Traditional IRA
A traditional IRA is similar to a 401(k) in that you deposit pre-tax income, but with an IRA, you can choose how to invest your contributions. Traditional IRAs limit the amount you can contribute to $7,000 per year until you reach age 50, when you can contribute $8,000 per year.
While your funds grow tax-free in your account, you must pay taxes when you withdraw from a traditional IRA in retirement. The IRS also requires you to withdraw a certain amount of money yearly from your traditional IRA when you turn 73.
Roth IRA
Roth IRAs follow some of the same rules as traditional IRAs but have two significant differences.
First, you contribute to Roth IRAs with after-tax funds. Like with a 401(k) or traditional IRA, you can invest your contributions and grow them tax-free. However, you don’t need to pay taxes when you withdraw from a Roth account in retirement.
Second, the IRS allows you to leave your funds in your Roth IRA as long as you wish.
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