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Home/Financial Foundation/LONG-TERM CARE INSURANCE · SUZE ORMAN

Converting a $1.6 Million Pretax 401(k) to a Roth Account Triggers Immediate Taxable Event

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Quinn Prescott

long-term care insurance · Apr 14, 2026

Converting a $1.6 Million Pretax 401(k) to a Roth Account Triggers Immediate Taxable Event

Source: DojiDoji Data Terminal

A retiree attempting to convert a $1.6 million pretax 401(k) into a Roth 401(k) and subsequently into a Roth IRA faces an immediate taxable event. Moving funds from a tax-deferred account to a tax-free Roth account triggers a tax liability on the total amount converted.

Related Brief3h ago
pension funding

Strong returns at Michigan's municipal pension system ease long-term strain on workers and taxpayers

Strong investment performance in 2025 increases the likelihood that underfunded municipal pension systems in Michigan will close funding gaps and reduce long-term liabilities for taxpayers. The Municipal Employees’ Retirement System of Michigan (MERS) posted returns that outperformed its benchmark and placed it in the top 15% of peer funds, exceeding its target rate of return across all measured time periods. MERS manages more than $19 billion in assets and serves over 150,000 participants, including police officers, firefighters, nurses, and other municipal workers across the state. As the fiduciary for participating local governments, MERS oversees investments, monitors performance, and manages costs for local pension plans—administering retirement systems for about 84% of Michigan’s municipalities. This performance comes amid ongoing funding challenges: in 2023, Michigan lawmakers approved up to $750 million in taxpayer funds to support pension systems funded at 60% or less. At that time, 37 of 748 municipalities fell below that threshold. Saginaw’s system, for example, was funded at just 49.1% in 2021, carrying a net pension liability of $180.1 million. Years of insufficient contributions, despite constitutional requirements to pre-fund pensions, left many systems strained, turning retirees and workers into de facto creditors of their governments. In MERS’s 2024 report, only 96 municipalities had pensions funded above 100%. Strong investment performance in 2025 increases the likelihood that underfunded systems will close funding gaps and reduce long-term liabilities for taxpayers.

Financial expert Suze Orman identified the risk in a recent episode of her Women & Money podcast, warning that such a move is not a tax loophole. The conversion would require the account holder to pay taxes on the $1.6 million balance at current income tax rates before the funds can reside in a tax-free environment.

Related Brief10h ago
debt management

The Psychological Cost of Mortgage Debt as a Liability

A homeowner who pays off their mortgage early removes the obligation to pay for shelter. This is a result of the idea that mortgage debt, while often termed 'good debt' because of home appreciation and the fixed-rate nature of 92% of U.S. mortgages, is still a liability. Rachel Cruze and Dave Ramsey argue that the mortgage is a liability that creates a psychological burden of the responsibility of carrying it. Cruze notes that the argument to invest excess cash in the market for 10% or 11% returns rather than paying down a mortgage is flawed because a person who owns their home outright would not borrow against their home to invest in the market. The process ends when the homeowner owes nothing to any other party.

long-term care insuranceSuze OrmanSECURE 2.0 IRS guidanceFed interest rate decision

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