Suze Orman Shares 5 Huge Retirement Savings Mistakes People Unknowingly Make

Planning for retirement requires more than just saving money — it demands understanding the intricate rules and potential pitfalls that can jeopardize your nest egg.

On a recent podcast episode, Suze Orman shared how a listener’s mistake with multiple rollovers in a single year created significant tax liabilities. 

This case highlights a truth Orman often emphasizes: The biggest financial mistakes are the ones you don’t even know you’re making. Here are five critical retirement savings missteps Suze Orman warns about and how to avoid them.

IRA rollovers can be tricky, and misunderstanding the rules can lead to costly consequences.

Many people assume they can make multiple rollovers within a calendar year. In reality, the IRS enforces a strict one-rollover-per-year rule, which spans 365 days from your first rollover. This rule applies to both traditional and Roth IRAs, and violating it could result in the entire amount being taxed as income.

Orman also stresses the importance of knowing the difference between a direct and an indirect rollover. Opting for an indirect rollover — where the funds are sent to you instead of directly to the new account — can trigger tax withholdings and penalties if not handled correctly. 

For instance, you may need to deposit the entire amount, including withheld taxes, into the new account within 60 days to avoid additional taxes and penalties.

Rolling over your 401(k) can also present challenges if you’re unaware of the rules. One common error involves having the distribution check made payable to you instead of directly to the new custodian. 

When this happens, the IRS requires a mandatory 20% tax withholding on the distributed amount.

Consider Suze’s example: If you roll over $200,000, you’ll only receive $160,000 because 20% (or $40,000) is withheld. If you don’t contribute the full $200,000 to your new account within 60 days, the $40,000 becomes taxable income.

If you’re under 55, you might also face a 10% early withdrawal penalty. These pitfalls underscore the importance of ensuring the distribution check is made payable directly to the new custodian to avoid unnecessary taxes and penalties.

Confusion between rollovers, transfers, and conversions can lead to financial mistakes.

Rollovers involve taking possession of your funds before moving them to another account, which introduces potential risks like tax penalties if not done within the 60-day window. 

Transfers, on the other hand, are a seamless custodian-to-custodian process that avoids these risks entirely.

Conversions — such as switching from a traditional IRA to a Roth IRA — introduce a different layer of complexity. When you convert to a Roth IRA, the converted amount is subject to income tax. 

Orman advises understanding these distinctions fully to avoid unintentionally triggering taxable events that could disrupt your retirement savings plan.

Tax season can be especially challenging for those handling complex retirement accounts. Many people mistakenly assume that basic tax software or self-filing is sufficient for navigating the intricate rules surrounding rollovers, transfers, and conversions. 

This approach often leads to errors, such as failing to report a rollover correctly or misunderstanding withholding requirements.

Orman highlights the importance of consulting a tax professional or financial advisor who specializes in retirement planning.

These experts can help ensure your filings comply with IRS regulations, saving you from unexpected tax liabilities and penalties.

A recurring theme in Orman’s advice is the value of professional guidance. Many individuals attempt to handle rollovers and other retirement decisions on their own, only to encounter unforeseen complications. 

For example, not understanding the tax implications of an indirect rollover or mismanaging the timing of a conversion can have significant financial consequences.

Engaging a certified financial planner or retirement specialist can help you navigate these challenges and optimize your retirement strategy. 

Professionals can provide tailored advice, ensuring your decisions align with both IRS regulations and your long-term financial goals.

Retirement savings mistakes often stem from a lack of knowledge about complex rules. Orman’s insights emphasize the importance of understanding the nuances of rollovers, transfers, and conversions — and seeking professional guidance when needed. 

By avoiding these common missteps, you can better prepare for retirement and safeguard your financial future.

Take a moment to evaluate your retirement strategy. Are you confident you’re making the most of your options, or could a little expert advice set you up for a more stress-free retirement?